Carol Stone, CBE

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070321c.jpg" width="353"></p>
<p>Retail trade in Canada eased 0.2% in January after surging 2.2% in December. The result year-on-year was up 4.9%, a bit slower than the overall gains during 2005 and 2006.</p>
<p>However, the January decline was concentrated in the automotive sector, and several other store groups had nice increases. New car dealers and used vehicle and parts dealers saw 2.0% and 1.5% decreases, respectively, and gas station sales were down 3.5%. These had all been strong in November and December, particularly the latter, when the &quot;automotive group&quot; as a whole had sales up 3.8%.</p>
<p>Non-automotive sales (the total less all vehicle and parts dealers and gas stations) were sluggish in November, but came up well in December, by 1.5% and they continued on ahead by 0.9% in January. Several store groups participated, including furniture, consumer electronics and clothing. So the decline in vehicles and fuel seemed to make room for spending on other items.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070321a.jpg" width="353"></p>
<p>On a volume basis, price declines have pushed total volume growth above nominal growth in several recent months. This was especially the case in September, but also in January, when sales in chained 1997 C$ expanded 5.0% year-on-year, compared with the nominal gain of 4.9%.</p>
<p>Sales performance among the Provinces has been uneven. Smaller ones on the East Coast -- Prince Edward Island and Nova Scotia -- showed moderate increases in January and those in the West, from Manitoba on all had sizable rises of more than 1%. But Quebec eked out only a 0.2% rise, while New Brunswick and Ontario had outright declines. A similar pattern holds for the year-to-year performance, with Ontario, which accounts for about one-third of the national total, experiencing just a 1.8% increase from January 2006 in contrast to 11.2% in Alberta. The western provinces are perhaps benefiting from high energy prices, which boost their income, compared with Ontario, where the people have to pay those prices instead.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070321b.jpg" width="353"></p>
<p>The national data for Canada are contained in Haver&#39;s <b> CANSIM </b> database, with that for the Provinces in <b>CANSIMR</b>.</p>
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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><b>CANADA</b> (SA, % Chg)</th>
<th scope="col"><b>Jan 2007</b></th>
<th scope="col"><b>Dec 2007</b></th>
<th scope="col"><b>Nov 2007</b></th>
<th scope="col"><b>Year Ago</b></th>
<th scope="col"><b>2006</b></th>
<th scope="col"><b>2005</b></th>
<th scope="col"><b>2004</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>Retail Trade: All Groups</b></td>
<td>-0.2</td>
<td>2.2</td>
<td>0.3</td>
<td>4.9</td>
<td>6.2</td>
<td>6.3</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol"><b>All Motor Vehicles &amp; Parts Dealers</b></td>
<td>-1.9</td>
<td>3.2</td>
<td>0.7</td>
<td>5.6</td>
<td>5.7</td>
<td>5.8</td>
<td>0.1</td>
</tr>
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<td class="firstcol"><b>Total less MV &amp; P</b></td>
<td>0.3</td>
<td>1.9</td>
<td>0.1</td>
<td>4.7</td>
<td>6.4</td>
<td>6.5</td>
<td>6.2</td>
</tr>
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<td class="firstcol"><b>Gasoline Stations</b></td>
<td>-3.5</td>
<td>4.7</td>
<td>5.3</td>
<td>0.2</td>
<td>9.1</td>
<td>15.4</td>
<td>11.4</td>
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<td class="firstcol"><b>Total less MV &amp; P and Gasoline</b></td>
<td>0.9</td>
<td>1.5</td>
<td>-0.6</td>
<td>5.4</td>
<td>5.9</td>
<td>5.2</td>
<td>5.5</td>
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Retail trade in Canada eased 0.2% in January after surging 2.2% in December. The result year-on-year was up 4.9%, a bit slower than the overall gains during 2005 and 2006. However, the January decline was concentrated in the [...]

Canada's Retail Trade Eases in January after Big December Gain; Western Provinces Show Strength While Ontario Is [...]

Louise Curley

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070320e.jpg" width="353"></p>
<p>Inflation, as measured by the year over year increase in the Consumer Price Index (CPI) was 2.78%, nine basis point over January, but still below December&#39;s high of 2.97%. This is the measure that the Bank of England focuses on in assessing its monetary policy. February marked the eleventh month that inflation exceeded the Bank of England&#39;s target of 2%. During that time, the Bank of England raised its key interest rate from 4.5% to 5.25%.</p>
<p>While the CPI measure of inflation is the target, other aspects of inflation come into play. Core inflation, defined as the Total CPI, less Energy, Food and Alcoholic Beverages, shows a more benign picture. This measure of inflation also rose nine basis points but remains well below the 2% level as can be seen in the first chart. The widening difference between the two series was largely due to rising prices of energy. It is only recently that the substantial fall in energy prices that has taken place over the past year is beginning to work its way into the consumers&#39; energy bill.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070320f.jpg" width="353"></p>
<p>A less sanguine outlook for inflation appears when one looks at the Retail Price Index (RPI). This measure of inflation was 4.58% in February , compared with 4.24% in January and 4.43% in December and was the highest inflation rate since August of 1991. The RPI, includes mortgage interest and council tax payments that are not included in the CPI. The RPIX excludes these items, but it still shows a higher rate of inflation than the CPI measure, as can be seen in the second chart. The difference is due to a combination of factors, including differences in coverage of goods and services, difference in the weights used and the formulas. In February, the rate of inflation in the RPIX was 3.68%, above January&#39;s 3.54%, but below December&#39;s 3.79%.</p>
<p>The RPIX was the official measure of inflation until December, 2003 when the Bank adopted the CPI and it is still used in wage negotiations and in the cost of living adjustments for government pension.</p>
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<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><b>INFLATION IN THE UNITED KINGDOM&nbsp;</b></th>
<th scope="col"><b>Feb&nbsp; 07</b></th>
<th scope="col"><b>Jan&nbsp;&nbsp; 07</b></th>
<th scope="col"><b>Dec&nbsp; 06</b></th>
<th scope="col"><b>2006</b></th>
<th scope="col"><b>2005</b></th>
<th scope="col"><b>2004</b></th>
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<td class="firstcol"><b>Consumer Price Index (CPI) Y/Y %</b></td>
<td>2.78</td>
<td>2.69</td>
<td>2.97</td>
<td>2.33</td>
<td>2.05</td>
<td>1.34</td>
</tr>
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<td class="firstcol"><b>Core CPI Index&nbsp; Y/Y %</b></td>
<td>1.79</td>
<td>1.70</td>
<td>1.78</td>
<td>1.30</td>
<td>1.51</td>
<td>1.09</td>
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<td class="firstcol"><b>Retail Price Index (RIP) Y/Y %&nbsp;</b></td>
<td>4.58</td>
<td>4.24</td>
<td>4.43</td>
<td>3.19</td>
<td>2.83</td>
<td>2.96</td>
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<td class="firstcol"><b> Core Retail Price Index (RPIX) Y/Y % </b></td>
<td>3.68</td>
<td>3.54</td>
<td>3.79</td>
<td>2.93</td>
<td>2.27</td>
<td>2.21</td>
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Inflation, as measured by the year over year increase in the Consumer Price Index (CPI) was 2.78%, nine basis point over January, but still below December's high of 2.97%. This is the measure that the Bank of England focuses on in [...]

Inflation in the UK :The CPI, Core CPI, RPI and RPIX

Robert Brusca

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<td><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070320a.jpg" width="353">U.S. housing starts rose 9.0% in February, as they regained ground lost after a 14.3% decline in January, the Commerce Department reported Tuesday. Housing starts are off 28.5% year-over-year in February. Yet some regions show gains&#133; Increases are concentrated in the South (+18.0%) and West (+26.4%) where milder weather helped recovery from similar declines in the prior month.<span style="mso-spacerun: yes">&nbsp; </span>The regions we expect to be more afflicted by bad weather show exactly that: the Northeast (-29.7%) and Midwest (-14.4%); there severe cold curtailed new construction.Blaming weather is a common tactic to salvage a forecast gone bad. So the question at hand must be why do we blame weather; what is the evidence? First, as noted above, cold weather affected starts in the regions where weather is coldest (NE and MW). Second, we can point to the obvious indicator of bad weather that the surge in utilities output tipped off in the industrial production report. That result also names weather as a nationally important event.Apart from that, February and March do not emerge as poster perfect months for seasonable weather. Some of the worst of winter&#146;s weather has been back-loaded in 2006/07. This implies that housing may have much more rebound yet to show us.<br><br>The overall chart on housing starts only hints at some sort of slowing in the process of housing&#146;s decline (see chart above).<span style="mso-spacerun: yes">&nbsp;</span>But regional data show more clearly that a bottoming process is really in train (see table below). The annualized growth rates show that for the South and the West near term trends have turned up or gone flat compared to earlier trends that show declines still in play. Even over six months the West and South show little tendency to decline or only a small erosion. These are sharp contrasts to the data drawn from the &#145;bad weather regions&#146; of the Northeast and Midwest.<span style="mso-spacerun: yes">&nbsp; </span>The Midwest shows accelerating weakness - a result I am not really prepared to take at face value even though there is clear potential cause; in the industrial sector that is the core of jobs in that region is really being battered. The Northeast also shows accelerating declines but a milder deceleration is at work there than the Midwest.On balance, as mixed as the regional data are, they display differences that are understandable and logically offer weather up as the explanation. This is another reminder to be careful in taking other data from the period as representative. If weather has had this sort of impact on housing and could distort industrial production, too, its impact on exaggerating weakness might be even more pronounced in reports where attribution of weakness to weather is not so obvious.</td>
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<b>Trends In Housing Starts</b>
</tr>
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<tbody>
<tr class="odd">
<td class="firstcol"><b>Feb 2007</b></td>
<td colspan="3"><b>% Change at Ann Rate</b></td>
</tr>
<tr>
<td class="firstcol"><b>Regional Trends</b></td>
<td><b>3-Mo</b></td>
<td><b>6-Mo</b></td>
<td><b>1-Yr</b></td>
</tr>
<tr>
<td class="firstcol">Northeast</td>
<td>-47.1%</td>
<td>-31.3%</td>
<td>-27.4%</td>
</tr>
<tr>
<td class="firstcol">Midwest</td>
<td>-116.3%</td>
<td>-73.7%</td>
<td>-50.6%</td>
</tr>
<tr>
<td class="firstcol">South</td>
<td>-0.5%</td>
<td>-4.5%</td>
<td>-20.3%</td>
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<td class="firstcol">West</td>
<td>50.4%</td>
<td>2.0%</td>
<td>-30.9%</td>
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<span id="articletext">
<p></p>
<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070320e.jpg" width="353"></p>
<p>Inflation, as measured by the year over year increase in the Consumer Price Index (CPI) was 2.78%, nine basis point over January, but still below December&#39;s high of 2.97%. This is the measure that the Bank of England focuses on in assessing its monetary policy. February marked the eleventh month that inflation exceeded the Bank of England&#39;s target of 2%. During that time, the Bank of England raised its key interest rate from 4.5% to 5.25%.</p>
<p>While the CPI measure of inflation is the target, other aspects of inflation come into play. Core inflation, defined as the Total CPI, less Energy, Food and Alcoholic Beverages, shows a more benign picture. This measure of inflation also rose nine basis points but remains well below the 2% level as can be seen in the first chart. The widening difference between the two series was largely due to rising prices of energy. It is only recently that the substantial fall in energy prices that has taken place over the past year is beginning to work its way into the consumers&#39; energy bill.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070320f.jpg" width="353"></p>
<p>A less sanguine outlook for inflation appears when one looks at the Retail Price Index (RPI). This measure of inflation was 4.58% in February , compared with 4.24% in January and 4.43% in December and was the highest inflation rate since August of 1991. The RPI, includes mortgage interest and council tax payments that are not included in the CPI. The RPIX excludes these items, but it still shows a higher rate of inflation than the CPI measure, as can be seen in the second chart. The difference is due to a combination of factors, including differences in coverage of goods and services, difference in the weights used and the formulas. In February, the rate of inflation in the RPIX was 3.68%, above January&#39;s 3.54%, but below December&#39;s 3.79%.</p>
<p>The RPIX was the official measure of inflation until December, 2003 when the Bank adopted the CPI and it is still used in wage negotiations and in the cost of living adjustments for government pension.</p>
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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><b>INFLATION IN THE UNITED KINGDOM&nbsp;</b></th>
<th scope="col"><b>Feb&nbsp; 07</b></th>
<th scope="col"><b>Jan&nbsp;&nbsp; 07</b></th>
<th scope="col"><b>Dec&nbsp; 06</b></th>
<th scope="col"><b>2006</b></th>
<th scope="col"><b>2005</b></th>
<th scope="col"><b>2004</b></th>
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<td class="firstcol"><b>Consumer Price Index (CPI) Y/Y %</b></td>
<td>2.78</td>
<td>2.69</td>
<td>2.97</td>
<td>2.33</td>
<td>2.05</td>
<td>1.34</td>
</tr>
<tr>
<td class="firstcol"><b>Core CPI Index&nbsp; Y/Y %</b></td>
<td>1.79</td>
<td>1.70</td>
<td>1.78</td>
<td>1.30</td>
<td>1.51</td>
<td>1.09</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Retail Price Index (RIP) Y/Y %&nbsp;</b></td>
<td>4.58</td>
<td>4.24</td>
<td>4.43</td>
<td>3.19</td>
<td>2.83</td>
<td>2.96</td>
</tr>
<tr>
<td class="firstcol"><b> Core Retail Price Index (RPIX) Y/Y % </b></td>
<td>3.68</td>
<td>3.54</td>
<td>3.79</td>
<td>2.93</td>
<td>2.27</td>
<td>2.21</td>
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U.S. Housing Starts Rise in February

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070319a.jpg" width="353"></p>
<p>February department store sales in Japan, which are not seasonally adjusted, were 1.15% above those of February 2006, the highest year to year increase since last March. While the year to year increase is reassuring, it does not necessarily tell us much about the course of total consumer spending. Until the late nineties, department store sales were a good indicator of the direction of total consumer spending, as can be seen in the first chart. (We have used the &quot;Final Consumption of Households excluding Imputed Rent&quot; series in the National Account as the measure of total consumer spending.) Since then, however, department store sales have trended downward while total consumer spending has continued to rise.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070319b.jpg" width="353"></p>
<p>In addition to department store sales, Japan publishes information on sales at all retail establishments, at large scale department stores, supermarkets, chain stores and convenience stores.</p>
<p>It is not only department store sales that no longer indicate the trend of total consumer spending, but sales at all retail establishments. The second chart comparing retail sales and total consumer spending shows the same general trends as those of department store sales and total consumer spending. Consumers are spending more on such services, as education, health, transportation, leisure activities that cannot be supplied by retail establishments.</p>
<p>While the wealth of retail sales data that Japan publishes may have little use as a reliable indicator of total consumer spending, the data are useful in tracking consumer buying habits. As noted above, consumers are using department stores less. Consumer purchases at chain stores fell sharply from the late 90&#39;s to 2002, and have been more or less constant since then. Supermarket sales have varied only slightly over the past nine years, as can be seen in the third chart that compares sales at chain stores and supermarkets. The brightest spot in the retail area has been the convenience store. Though still smaller than department store sales, convenience store sales are the only area where significant growth is apparent. The fourth chart compares, convenience store sales with department store sales over the past nine years.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070319c.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070319d.jpg" width="353"></p>
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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><b>Consumer Spending in Japan</b></th>
<th scope="col"><b>Feb 07</b></th>
<th scope="col"><b>Jan&nbsp; 07</b></th>
<th scope="col"><b>Dec 06</b></th>
<th scope="col"><b>2002</b> <b>Bil Yen</b></th>
<th scope="col"><b>2006 Bil Yen</b></th>
<th scope="col"><b>2006 %</b></th>
<th scope="col"><b>2005 %</b></th>
<th scope="col"><b>2004 %</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>Private HH Consumption ex rent</b></td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
<td>277,709</td>
<td>235,531</td>
<td>0.40</td>
<td>0.59</td>
<td>0.86</td>
</tr>
<tr>
<td class="firstcol"><b>Retail Sales</b></td>
<td>n.a.</td>
<td>-0.89</td>
<td>-0.17</td>
<td>131,413</td>
<td>129,785</td>
<td>0.20</td>
<td>1.12</td>
<td>-0.60</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Large Scale Department Store Sales&nbsp;&nbsp;</b></td>
<td>n.a.</td>
<td>-0.74</td>
<td>-2.86</td>
<td>9,365</td>
<td>8,644</td>
<td>-1.36</td>
<td>-1.02</td>
<td>-2.78</td>
</tr>
<tr>
<td class="firstcol"><b> Supermarkets </b></td>
<td>n.a.</td>
<td>1.37</td>
<td>-0.63</td>
<td>12,653</td>
<td>12,504</td>
<td>-0.49</td>
<td>-1.38</td>
<td>-1.31</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Department Stores Sales</b></td>
<td>1.15</td>
<td>-0.39</td>
<td>2.65</td>
<td>8,112</td>
<td>7,770</td>
<td>-0.91</td>
<td>-0.47</td>
<td>-2.87</td>
</tr>
<tr>
<td class="firstcol"><b>Chain Store Sales</b></td>
<td>n.a.</td>
<td>-0.53</td>
<td>-1.99</td>
<td>14,370</td>
<td>14,022</td>
<td>-1.08</td>
<td>-0.54</td>
<td>-1.20</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Convenience Store Sales</b></td>
<td>n.a.</td>
<td>1.68</td>
<td>2.20</td>
<td>6,980</td>
<td>7,399</td>
<td>0.54</td>
<td>0.97</td>
<td>2.72</td>
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February department store sales in Japan, which are not seasonally adjusted, were 1.15% above those of February 2006, the highest year to year increase since last March. While the year to year increase is reassuring, it does not [...]

Japanese Department Store Sales And Total Consumer Spending

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<span id="articletext">
<p></p>
<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070316e.jpg" width="353"></p>
<p>There are 86,400 seconds in a day: 24 hours x 60 minutes x 60 seconds. In February, according to the Oil Market Intelligence publication of industry consulting firm Energy Intelligence, the world consumed 87,069 million barrels of petroleum products, a new monthly record. That amount equals 1,007 barrels every second. Haver carries the daily average demand information in its <b>OMI </b>database, offered in partnership with Energy Intelligence. The idea for this time calculation is not ours, though. It comes from an investment consultant in the field, Peter Tertzakian, author of a book published last year titled, appropriately enough, &quot;A Thousand Barrels a Second&quot;.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070316c.jpg" width="353"></p>
<p>February&#39;s daily oil consumption for the total world was up 3.4 million barrels from January (4.1%), although February demand is frequently high, and this was just 1.5% above February 2006. A notable part of the increase came in the US, where demand was 21.6 million barrels daily, 5.4% more than a year ago. The US experience is clearly a spike and as with other economic data for the month -- jobs in the construction industry and retail sales, for examples -- was likely related to the swing to unusually cold weather, particularly compared with mild February weather last year.</p>
<p>Even with this February rise, the US share of world oil consumption is no higher than it has been running over the last couple of years: just under 25%. These data illustrate well what we&#39;ve heard more casually elsewhere: the significant growth in oil consumption is coming from developing regions of the world. For instance, in China, the last 12 months&#39; average has been 7.1 million barrels daily, 6.2% ahead of the 12 months ended February 2006.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070316f.jpg" width="353"></p>
<p>From the third graph, we can see that the US share of the world total over a longer period, since 2000, has actually declined. In dramatic contrast, the OMI grouping called &quot;developing countries&quot;* has gained share. From 26.4% in 2002, those countries expanded to 28.0% in 2006.</p>
<p>These graphs illustrate some upcoming innovations in Haver&#39;s DLXVG3 software. In the Chinese example, we were able to take a percent change in a moving average, utilizing a new &quot;nested function&quot; capability. In the market share graph, we were able to make two separate calculations involving three different series. Elsewhere this past week in several of Robert Brusca&#39;s articles, you have seen three or even four series on a single graph. These new features will be available to clients soon and we&#39;re very excited about them.<br></p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><b>Daily Average Oil Demand</b>: Thousand Barrels</th>
<th scope="col"><b>Feb 2007</b></th>
<th scope="col"><b>Jan 2007</b></th>
<th scope="col"><b>Feb 2006</b></th>
<th scope="col"><b>2006</b></th>
<th scope="col"><b>2005</b></th>
<th scope="col"><b>2004</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>Total World</b></td>
<td>87,069</td>
<td>83,653</td>
<td>85,796</td>
<td>84,475</td>
<td>83,838</td>
<td>82,287</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Change</td>
<td>1.5</td>
<td>0.1</td>
<td>0.3</td>
<td>0.8</td>
<td>1.9</td>
<td>4.3</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>United States</b></td>
<td>21,632</td>
<td>20,618</td>
<td>20,518</td>
<td>20,768</td>
<td>20,799</td>
<td>20,731</td>
</tr>
<tr>
<td class="firstcol"><b>China</b></td>
<td>7,276</td>
<td>7,222</td>
<td>7,107</td>
<td>7,074</td>
<td>6,675</td>
<td>6,367</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Developing Countries*</b></td>
<td>24,135</td>
<td>23,804</td>
<td>23,675</td>
<td>23,760</td>
<td>23,160</td>
<td>22,251</td>
</tr>
</tbody>
</table>
</body>
</html>


There are 86,400 seconds in a day: 24 hours x 60 minutes x 60 seconds. In February, according to the Oil Market Intelligence publication of industry consulting firm Energy Intelligence, the world consumed 87,069 million barrels of [...]

World Oil Consumption Reaches Record 87 Million Barrels/Day; Developing Country Share Expands

U.S. Industrial Production Increased 1.0 percent in February

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070315c.jpg" width="353"></p>
<p>Consumer prices in the Eurozone rose 1.8% in February from a year ago, the same as in January and 0.1% below December. In February 2006, the year-on-year change was 2.3%, boosted by strong energy gains.</p>
<p>In the most recent months, energy prices have slowed, as is well known. But a version of a &quot;core&quot; HICP has picked up. A year ago, when energy was running rampant, the index less energy and food/alcohol/tobacco was very slow at 1.2% year-on-year. Now, this core rate has picked up to 1.7% in January and 1.9% in February. Several sectors are participating: clothing prices in particular have stopped falling. While rising only about 1%, they have turned around from earlier outright declines. Household maintenance and repairs have gained, as well as home furnishings and housekeeping products. Health care costs are rising this year. There have been modest accelerations of education costs, hotels and restaurants and &quot;other&quot;. Communications prices are still falling, but much less than they had been.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070315d.jpg" width="353"></p>
<p>So while both the total HICP and this core measure are hovering below the ECB&#39;s comfort rate of 2%, the breadth of the price increases is opening up concern over inflation. Over the last 15 months, the ECB has raised its target rate seven times, most recently on March 8 to 3.75%. [This is the minimum bid rate for conducting refinancing operations at the Bank.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070315e.jpg" width="353"></p>
<p>Note that these price data cover series denoted in Haver&#39;s databases as &quot;EA11/12/13&quot;. This grouping includes the new members of the Monetary Union only as they join, not earlier. Prior to 2001, there were 11 members; Greece was added then and finally Slovenia just this year. The data are not &quot;break adjusted&quot;, as is an alternative series, which we call EA13 and which includes Greece and Slovenia since the beginning of these data in 1996. As seen in the accompanying graph, there is hardly any visible difference in the groupings. But there are small differences in individual periods: for instance, the &quot;headline rate&quot; for EA11/12/13 this month is 1.8%, but the comparable EA 13 figure is 1.9%.<br></p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><b>EA11/12/13 </b>Yr/Yr % Changes</th>
<th scope="col"><b>Feb 2007</b></th>
<th scope="col"><b>Jan 2007</b></th>
<th scope="col"><b>Dec 2006</b></th>
<th scope="col"><b>Year Ago</b></th>
<b>December/December</b>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>2006</b></td>
<td><b>2005</b></td>
<td><b>2004</b></td>
</tr>
<tr>
<td class="firstcol"><b>HICP</b> [MUICP]</td>
<td>1.8</td>
<td>1.8</td>
<td>1.9</td>
<td>2.3</td>
<td>1.9</td>
<td>2.2</td>
<td>2.4</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Energy</b></td>
<td>0.8</td>
<td>0.9</td>
<td>2.9</td>
<td>12.6</td>
<td>2.9</td>
<td>11.3</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol"><b>Ex Energy,&nbsp; Food/- Alcohol/Tobacco</b></td>
<td>1.9</td>
<td>1.7</td>
<td>1.5</td>
<td>1.2</td>
<td>1.5</td>
<td>1.4</td>
<td>1.9</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Memo: EA 13</b></td>
<td>1.9</td>
<td>1.8</td>
<td>1.9</td>
<td>2.4</td>
<td>1.9</td>
<td>2.2</td>
<td>2.4</td>
</tr>
</tbody>
</table>
</body>
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Consumer prices in the Eurozone rose 1.8% in February from a year ago, the same as in January and 0.1% below December. In February 2006, the year-on-year change was 2.3%, boosted by strong energy gains. In the most recent months, [...]

February Eurozone HICP Holds at 1.8% Yr/Yr; Core Picks Up to 1.9% with Widespread Gains

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

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

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Andrew Cates

**China-US shipping activity** 
The economic fallout from escalating US-China trade tensions is becoming increasingly visible in the data. A clear example is the chart below, which highlights a sharp drop in vessel arrivals at the ports of Los Angeles and Long Beach, along with a notable decline in ships waiting offshore. These trends point to a tangible weakening in bilateral trade flows, as the effects of tit-for-tat tariffs imposed by both countries begin to bite. Given the outsized role the US and China play in global commerce, this slowdown is likely to reverberate through global supply chains, weighing on trade volumes, dampening demand, and curbing economic growth worldwide.

250501Z1.jpg

**GDP growth in Q1**
Data this week showed that the US economy contracted, albeit modestly, in Q1 even as the euro area recorded a modest expansion—an unusual divergence. The contraction in US GDP can be largely attributed to a sharp increase in imports, as firms rushed to front-load purchases ahead of anticipated tariff hikes. In addition, domestic demand was subdued, with weaker contributions from both consumer spending and government consumption. This decoupling between the US and euro area economies is particularly striking given the current global focus on the US dollar. While the euro area has shown unexpected signs of resilience, the US downturn raises important questions about its underlying momentum, especially as trade dynamics and policy uncertainty continue to cloud the outlook.

250501Z2.jpg

**The US dollar versus yield differentials**
Chart 3 below illustrates a sharp breakdown in the correlation between the US-Germany 10-year yield differential and the EUR/USD exchange rate. Historically, the dollar has moved closely with interest rate spreads, as yield-seeking capital flowed into US assets. But since early 2025—and more acutely following the April tariff actions—the dollar has weakened markedly even as the yield spread has narrowed only modestly. This decoupling underscores a critical shift: capital markets are reacting not just to monetary policy, but to rising trade and geopolitical uncertainty. In other words, the exchange rate is now being driven as much by risk sentiment as by interest rate arbitrage.

250501Z3.jpg

**The US economy’s structural outperformance and the dollar**
A second dynamic, captured in the next chart, reveals a tight correlation between the US real effective exchange rate and the potential GDP growth differential between the US and euro area over the past 50-60 years. This raises the question: has dollar strength (until recently) merely been a reflection of US growth leadership—or are capital inflows themselves helping to sustain this growth outperformance? In effect, the tail may be wagging the dog. Global investors have long allocated capital to the US, attracted by its macroeconomic resilience, technological leadership, and deep, liquid financial markets. The danger now is that the US trade war may disrupt this equilibrium. A sharp or sustained reduction in capital inflows could undermine growth, weaken the dollar, and trigger broader financial instability. Moreover, reversing this dynamic is not straightforward—barring a credible structural resurgence in European (or Asian) growth, the global investment landscape remains tilted toward the US.

250501Z4.jpg

**US competitiveness versus Europe, China and Japan** 
The next chart below examines relative unit labour costs across major economies since 2011. The US and China have seen a broadly similar trajectory, with steady increases in relative cost structures, while the euro area has remained flat and Japan has seen dramatic improvement. This suggests that, from a cost competitiveness standpoint, the US is not uniquely disadvantaged vis-à-vis China. However, as we discuss further below, this parallel erosion of cost competitiveness is occurring at much higher nominal wage levels in the US, which blunts its ability to regain export share through tariff-related shifts alone. The trade war strategy—absent a corresponding improvement in productivity or structural reforms—risks imposing costs without delivering material competitiveness gains.

250501Z5.jpg

**Average wages in selected developed and developing economies**
This point is reinforced by the final chart, which shows estimates for average monthly wages across countries in 2024. US labour remains much more expensive than in peer or emerging economies. So even if China’s costs rise in tandem with the US, the global supply chain has ample alternatives. 'China plus one' strategies are accelerating, and the US remains structurally misaligned with low-cost production hubs. Tariffs aimed at reshoring supply chains are unlikely to deliver sustained gains unless accompanied by deep supply-side reforms, and risk further disincentivizing foreign direct investment if global firms perceive US trade policy as erratic or punitive.

250501Z6.jpg

Financial markets found a measure of calm this week, buoyed by some subtle shifts in tone from US policymakers. A softening in the administration’s rhetoric around trade tariffs coupled with a less confrontational stance toward Federal Reserve Chair Jerome Powell, helped ease tensions that had roiled markets earlier in the month. Equities rebounded modestly, and volatility indicators edged lower, reflecting cautious optimism that the worst of the policy shocks may be behind us. But beneath the surface, significant downside risks persist. New shipping data point to a pronounced slowdown in US-China trade flows (chart 1), suggesting the damage from recent tariff escalations is already rippling through global supply chains. Meanwhile, incoming data for the US revealed an unexpected contraction in the economy in Q1 and further signs of weakness in the labour market (chart 2). The US dollar, in the meantime, while long supported by superior growth and yield differentials, has begun to decouple from traditional drivers (charts 3 and 4) suggesting growing pressure on capital flows. At the same time, structural imbalances are drawing renewed scrutiny: unit labour cost comparisons show the US steadily losing competitiveness (chart 5), while nominal wage disparities remain stark versus China and other Asian economies, further complicating any effort to restore trade balance without broader reforms (chart 6). In short, while markets may be drawing temporary comfort from a pause in tariff brinkmanship, the deeper economic and financial vulnerabilities exposed this month remain unresolved—and increasingly central to the global macro narrative.

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/3PzXXKrkHcwtOLipohEdnB?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tariff Truce, Tenuous Trust

Tom Moeller

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250430O1.jpg

Real GDP eased 0.3% SAAR (+2.1% y/y) during the first quarter of 2025 after increasing 2.4% in Q4’24 and 3.1% in Q3’24. A 0.4% increase had been expected in the Action Economics Forecast Survey. It was the first decline since Q1 2022.

Foreign trade subtracted 4.83 percentage points from growth last quarter as imports surged 41.3% (13.4% y/y) ahead of tariffs, which began to come into effect in the first quarter. The rise followed a 1.9% decline in Q4’24. Exports rose 1.8% (3.0% y/y) after easing 0.2% in Q4. Inventories added 2.25 percentage points to growth after subtracting 0.84 percentage point from Q4 growth.

Real final sales to domestic purchasers grew 2.3% (2.9% y/y) in Q1 after rising 3.0% in Q4. Personal consumption expenditures rose 1.8% (3.1% y/y) following a 4.0% gain. Durable goods spending fell 3.4% (+5.3% y/y) after surging 12.4% in Q4. Motor vehicle purchases declined 11.1% (+5.5% y/y) after strengthening 19.7% in Q4. Spending on home furnishings & appliances gained 1.5% (6.1% y/y) following a 5.4% rise. Recreational goods & vehicle outlays rose 2.5% (7.0% y/y) last quarter after a 13.9% Q4 increase.

Nondurable goods outlays rose 2.7% (3.0% y/y) following 3.1% growth in Q4. Apparel spending increased 6.7% (2.5% y/y) following a 5.0% rise. Food & beverage buying gained 2.5% (2.3% y/y) after a 1.8% increase. Gasoline & fuel oil purchases increased 4.6% (3.4% y/y) after falling 2.0% in Q4.

Spending on services increased 2.4% last quarter (2.7% y/y) after a 3.0% gain. Outlays on housing & utilities increased 3.4% (1.8% y/y) after rising 1.1% in Q4. Health care expenditures rose 4.0% (4.8% y/y) following a 4.7% strengthening. Transportation outlays increased 5.3% (4.6% y/y) after a 3.7% rise while recreation spending rose 4.7% (2.8% y/y) following a 4.5% rise. Restaurant & hotel expenditures declined 2.1% (+0.5% y/y) following a 2.8% rise. Financial services expenditures rose 1.9% (2.0% y/y) after a 3.1% Q4 increase.

Business fixed investment increased 9.8% (3.6% y/y) following a 3.0% decline in Q4. Expenditures on structures rose 0.4% (-0.4% y/y) after a 2.9% increase. Expenditures on producers’ durable equipment jumped 22.5% (8.0% y/y) after falling 8.7%.  Outlays on information processing equipment soared 69.3% (18.9% y/y) following a 7.3% decline. Industrial equipment investment fell 1.4% (-0.3% y/y) after easing 0.9%. Intellectual property product spending rose 4.1% (1.8% y/y) following a 0.5% decline. 

Residential structures investment increased 1.3% (-0.1% y/y) in Q1 after a 5.5% Q4 rise.

250430P1.jpg

250430Q1.jpg

Government spending fell 1.5% (+2.4% y/y) after a 3.1% Q4 rise. Federal government expenditures declined 5.1% (+2.9% y/y) after rising 4.0% in Q4. National defense expenditures declined 8.0% (+4.0% y/y) after increasing 4.8% in Q4. State & local government spending rose 0.8% (2.1% y/y) following a 2.5% rise.

The GDP price index rose 3.7% (2.6% y/y) after increasing 2.3% in Q4. It was the largest increase since Q4’22. A 2.4% increase had been expected. The PCE chain price index increased 3.6% (2.5% y/y) following a 2.4% rise. The PCE price index excluding food and energy rose 3.5% (2.8% y/y) after increasing 2.6% in Q4. The business fixed investment price index rose 0.4% (1.8% y/y) after 1.5% rise. The residential price index strengthened 3.9% (3.2% y/y) after a 1.9% rise while the government price index increased 4.7% (2.8% y/y) following a 2.1% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

250430R1.jpg

250430S1.jpg

- Decline in GDP is first in three years.
- Foreign trade subtracts substantially ahead of tariffs.
- Domestic final demand growth weakens.
- Price index strengthens with higher core PCE prices.

U.S. GDP Unexpectedly Declines in Q1’25; Prices Strengthen

Michael J. Moran

250430A.jpg

250430B.jpg

High-side readings on the price indexes for personal consumption expenditures in January and February caused some concern about emerging price pressure, especially with some policies of the Trump administration possibly adding to the upward force. However, March brought notable relief, with the headline price index falling slightly (-0.04%). A marked decline in energy prices was helpful (-2.7%), but core prices also were subdued, increasing less than 0.1%.  Year-over-year changes were still above the Fed’s target of 2%, but only barely so for the headline measure (2.3%). The core index backed away from the reading of 3.0% in February, but the latest reading of 2.7% was in line with observations in the past year, and still uncomfortably above target.

Consumers roused from a winter slumber in March, with nominal outlays increasing 0.7%. With inflation restrained, real outlays also posted a gain of 0.7%. Spending on durable gods stood out, with real outlays advancing 3.2%. Real outlays for both nondurable goods and services rose 0.4%, a solid pace. Signs of life were certainly welcome after an average decline of 0.1% in January and February. The March rebound left growth of 1.8% (annual rate) in the first quarter.

The brisk increase in spending in March was supported by a solid gain in personal income (0.5% in both nominal and real terms). Growth in wage income was firm at 0.5%, while proprietors’ income was robust with a gain of 1.8% (not annualized!). The farm sector led the advance in proprietors’ income, but the nonfarm sector also was strong (0.6%).

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**.

250430C.jpg

250430D.jpg

- Price pressure eases.
- Spending rebounds after two soft months.

Personal Income, Consumption, and Prices in March

250430F20.jpg

250430G20.jpg

The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

U.S. Pending Home Sales Surge in March

Sandy Batten

250430F5.jpg

250430G5.jpg

The employment cost index (ECI) for civilian workers, arguably the most accurate measure of labor compensation in the United States, rose 0.9% q/q (3.6% y/y) in Q1, the same quarterly increase as in last year’s Q4, according to the Bureau of Labor Statistics. The quarterly gains have fluctuated between 0.8% and 1.0% for the past six quarters. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 3.5% y/y gain.

Wages and salaries for civilian workers rose 0.8% q/q (3.5% y/y) in Q1, down from 1.0% q/q in Q4. This tied the Q3 2024 quarterly rise as the smallest increase since Q2 2021. It was also the smallest y/y increase since Q2 2021. Benefits increased by an outsized 1.2% q/q (3.9% y/y) in Q1 versus 0.8% q/q in Q4. This is the largest quarterly gain since Q2 2022. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing gradually.

Private industry workers’ compensation rose 0.8% q/q (3.4% y/y) in Q1, down from 0.9% q/q (3.6% y/y) in Q4. Wages and salaries for private industry workers increased 0.8% q/q (3.4% y/y) in Q1 versus 0.8% q/q (3.7% y/y) in Q4. The quarterly gain in Q1 tied that in Q3 2024 as the smallest increase since Q4 2020. Benefits for private industry workers jumped 1.2% q/q (3.6% y/y). the largest quarterly gain since Q2 2022. The acceleration in benefits in Q1 was primarily in service-producing industries.

Compensation in private goods-producing industries increased 1.0% q/q (3.2% y/y) in Q1, the largest quarterly gain in five quarters, versus a 0.7% q/q increase in Q4. Compensation in construction jumped 1.3% q/q, its largest quarterly increase since Q2 2022, up from a 0.6% q/q gain in Q4. Manufacturing compensation growth slowed to 0.7% q/q, its slowest quarterly advance since Q4 2020, from 0.8% q/q in Q4. Compensation in private service-producing industries increased 0.8% q/q (3.5% y/y), down slightly from a 0.9% q/q gain in Q4. Compensation in education and health services jumped 1.3% q/q, its largest quarterly gain since Q3 2023. In contrast, compensation in other services edged up 0.1% q/q in Q1, its smallest quarterly advance since before the pandemic.

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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- Compensation grew 0.9 q/q in Q1, the same pace as in Q4.
- Wage growth slowed to 0.8% q/q while benefits surged 1.2% q/q, their largest quarterly increase since Q2 2022.

Economy in Brief: March 2007

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