Tom Moeller

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Consumers are feeling better about today's economy and its prospects. The
University of Michigan's Index of Consumer Sentiment for May improved to 84.5
(6.6% y/y), the highest level since July 2007. It compared to the consensus
forecast for 83.8 and a mid-month reading of 83.7. During the last ten years,
there has been a 60% correlation between the level of sentiment and the
three-month change in real personal consumption expenditures.
This month's reading of current economic conditions increased 9.0% (12.4%
y/y) to 98.0, the highest figure since July 2007. The consumer expectations
figure improved 11.8% (2.0% y/y) to 75.8.
The Reuters/University of Michigan survey data are not seasonally adjusted.
The readings are based on telephone interviews with over 300 households. Data
can be found in Haver's USECON database. The expectations figure is from
Action Economics and can be found in Haver's AS1REPNA database.
Piggy Banks from the Federal Reserve Bank of New York is available
<a href="http://libertystreeteconomics.newyorkfed.org/2013/05/piggy-banks.html">here</a>.


<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >University of Michigan (Q1'66
 = 100)</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >May'12</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Consumer Sentiment</td>
 <td >84.5</td>
 <td >76.4</td>
 <td >78.6</td>
 <td >79.3</td>
 <td >76.5</td>
 <td >67.3</td>
 <td >71.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Current Economic Conditions</td>
 <td >98.0</td>
 <td >89.9</td>
 <td >90.7</td>
 <td >87.2</td>
 <td >85.6</td>
 <td >79.1</td>
 <td >80.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Consumer Expectations</td>
 <td >75.8</td>
 <td >67.8</td>
 <td >70.8</td>
 <td >74.3</td>
 <td >70.7</td>
 <td >59.8</td>
 <td >66.0</td>
 </tr>
 </tbody>
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Consumers are feeling better about today's economy and its prospects. The University of Michigan's Index of Consumer Sentiment for May improved to 84.5 (6.6% y/y), the highest level since July 2007. It compared to the consensus [...]

U.S. Consumer Sentiment Continues To Improve

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 Personal income moved marginally lower during April (2.8% y/y) following
 a 0.3% March advance, initially reported as 0.2%. The income figure fell
 short of consensus expectations for a 0.2% increase. No change in wages
 and salaries (3.2% y/y) followed a 0.2% increase. Rental income ticked up
 0.1% (14.7% y/y) but proprietors income reversed earlier strength and fell
 0.7% (+6.2% y/y). Dividend income remained firm with a 1.0% rise (8.4%
 y/y). A 0.5% advance (-0.5% y/y) in interest income followed three
 consecutive months of 0.9% decline. Transfer receipts were off 0.6% (+2.7%
 y/y). Notable was the 3.0% drop (-30.8% y/y) in jobless insurance benefits.
 A 0.2% decline (+2.8% y/y) in personal consumption expenditures
 followed March's 0.1% uptick. No change in spending was expected. Lower
 prices prompted an 8.4% decline (-10.6% y/y) in spending on gasoline.
 Consumers took the money and spent it on clothing, up 1.0% (4.0% y/y), and
 furniture &amp; appliances, up 0.7% (4.6% y/y). Motor vehicle expenditures
 slipped marginally (+8.5% y/y), off for the third consecutive month.
 Services spending ticked up 0.1% (3.2% y/y), bolstered by a 0.9% jump (5.5%
 y/y) in outlays at restaurants &amp; hotels.
 The personal savings rate held stable at a low 2.5%. The level
 remained well below the 3.5% rate 12 months ago and the 4.0%-to-5.5%
 averages of the prior four years.
 The PCE chain price index declined 0.3% (+0.7% y/y) pulled lower
 by a 7.7% drop (-8.0% y/y) in gasoline &amp; energy prices. Elsewhere,
 durable goods prices fell 0.3% (-1.8% y/y) while apparel prices were off
 the same 0.3% (+0.3% y/y). Food prices ticked up another 0.1% (1.1% y/y)
 while services prices also inched up 0.1% (1.7% y/y). The price index
 excluding food &amp; energy was unchanged (1.1% y/y). &nbsp;
 Adjusted for price changes,&nbsp;disposable income during April ticked
 up 0.1% (1.0% y/y) while real spending also inched up 0.1% (2.1% y/y).
 The personal income &amp; consumption figures are available in Haver's USECON
 and USNA databases. The consensus expectation figure is in the AS1REPNA
 database.
 Estimating the Trend Rate of Economic Growth Using the CFNAI
 from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2013/cfljune2013_311.pdf">here</a>.

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 &nbsp;


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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Personal Income &amp;
 Outlays (%)</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Personal Income</td>
 <td >-0.0</td>
 <td >0.3</td>
 <td >1.2</td>
 <td >2.8</td>
 <td >3.5</td>
 <td >5.1</td>
 <td >3.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Wages &amp; Salaries</td>
 <td >0.0</td>
 <td >0.2</td>
 <td >0.7</td>
 <td >3.2</td>
 <td >3.3</td>
 <td >4.0</td>
 <td >2.1</td>
 </tr>
 <tr>
 <td class="firstcol" >Disposable Personal Income</td>
 <td >-0.1</td>
 <td >0.2</td>
 <td >1.2</td>
 <td >1.7</td>
 <td >3.3</td>
 <td >3.8</td>
 <td >3.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Personal Consumption Expenditures</td>
 <td >-0.2</td>
 <td >0.1</td>
 <td >0.8</td>
 <td >2.8</td>
 <td >3.7</td>
 <td >5.0</td>
 <td >3.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Personal Saving Rate</td>
 <td >2.5</td>
 <td >2.5</td>
 <td >2.4</td>
 <td >3.5 
 (Apr'12)</td>
 <td >3.9</td>
 <td >14.2</td>
 <td >5.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >PCE Chain Price Index</td>
 <td >-0.3</td>
 <td >-0.1</td>
 <td >0.4</td>
 <td >0.7</td>
 <td >1.7</td>
 <td >2.4</td>
 <td >1.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Less Food &amp; Energy</td>
 <td >0.0</td>
 <td >0.1</td>
 <td >0.1</td>
 <td >1.1</td>
 <td >1.7</td>
 <td >1.4</td>
 <td >1.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Real Disposable Income</td>
 <td >0.1</td>
 <td >0.3</td>
 <td >0.8</td>
 <td >1.0</td>
 <td >1.5</td>
 <td >1.3</td>
 <td >1.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Real Personal Consumption
 Expenditures</td>
 <td >0.1</td>
 <td >0.2</td>
 <td >0.4</td>
 <td >2.1</td>
 <td >1.9</td>
 <td >2.5</td>
 <td >1.8</td>
 </tr>
 </tbody>
 </table>



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Personal income moved marginally lower during April (2.8% y/y) following a 0.3% March advance, initially reported as 0.2%. The income figure fell short of consensus expectations for a 0.2% increase. No change in wages and salaries [...]

U.S. Personal Income, Spending and Prices Fall; Savings Remain Lean

Robert Brusca

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 Progress, yes...but not much 
 
 
 
 

 
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The indices of sentiment and confidence in the EU area, for the Monetary Union sub-set, as well as for their key individual members, showed surprising resilience and strength in May. The overall EU index rose as the sentiment index for 10 of 11 key EU members improved month-to-month. This improvement followed a month in which seven of the same members reported month-to-month declines. In the previous month of March, 5 of them had reported declines.

Is it always good to remind people that one month does not determine a trend, however, the rebound of these sentiment indices for 10 out of 11 key countries as well as for the EU as a whole and for the Monetary Union is a good start to something better.

Still, once we evaluate where things sit, the answer is that the readings for the economic union the monetary union and these key 11 countries are still unfailingly week - even after the rebound in May. 

We evaluate the standing of the respective EU diffusion metrics in May by placing the current reading for each region or country in an ordered queue of its historic data then expressing that standing is a percentile positioning in the queue. For example, the EU index is in the 12 percentile of its queue. That means it is weaker historically than its current level only 12% of the time. The EMU metric for sentiment is in the 11.4 percentile of its queue, its weaker only 11.4% of the time. Of course, the ranking for the union is a weighted average of its various economies but with the overall index being weighted separately. Right now, for example, it appears that the EMU index is weaker than most of the members that carry the largest weight in the euro-Zone itself. How could that happen? The answer is that it's not just the weakness of the components in the EMU index that gives it its ranking but also the coincidence of all of that weakness happening together and it's the coincident occurrence of weakness that is responsible for the lower standing of the region than for most of its members

The weakest queue standing among these key 10 EMU members is from France which is in the 9.3 percentile of its queue followed by Spain in the 10.2 percentile of its queue. After those two relatively large EMU members the percentile standings move up to 12.9 for Belgium, to 14.1 for the Netherlands, to 15.0 for Portugal, and to 16.8 for Austria and so on. Germany, of course, is that the top of the food chain with the 35.6 percentile standing but note this is still pretty close to the bottom third of its range and it's the best of the lot and Germany is the largest economy in EMU.
The Industrial sector 
The industrial sector improved in the monetary union to a reading of -13 from reading of -14 (note that the values in the table by industry sector are for all of the EU not for the EMU). The queue standings for industry find Germany at the strongest reading at 40.7 percentile, Italy at the 13.8 percentile, France at the 18.6 percentile all expressed as percentile standings of their their respective queues. We also look at them in terms of changes of the last three months the German reading has deteriorated by four points, the French reading has deteriorated by three points, the Italian reading is unchanged, and the Spanish reading is down by one point. The overall EMU reading is weaker by two points. So the improvement that were seeing in industrial sector is mostly from very weak levels in April as we are still for the most part below the levels we saw in February. This is a common them for most categories this month...a minor one month bounce.
Consumer Confidence 
Consumer confidence in EMU continues to be uniformly low. In the EMU region it's in the bottom 15 percentile of its queue standing. There was no improvement in consumer confidence month-to-month, although April had showed improvement from March which was even with its value in February. Unemployment expectations have been steadily dropping they are still quite high in the top 22nd percent of their historic queue (expectations are higher only 22% of the time). And by country Germany continues to be the strongest with a decent consumer rating in the 64th percentile of its historic queue, nearly a top one-third reading. The EU's UK has a 20%-of-queue rating, while France's standing is in the bottom 12% of its queue and Spain is in the bottom 11.6% of its queue. 
Retailing: retail therapy? 
Retailing improved in the month in EMU to a -17 net reading from -18 reading in April but it is still below its -16 reading for February. The queue standing for the May reading of -17 is in the 17 percentile of its historic queue, a very weak standing. Germany has the highest queue standing on this metric in the 66.8 percentile or top one-third reading. the UK moves up to a more respectable 42nd percentile standing with Greece (Greece!) at a 34th percentile standing. Spain is at a 29th percentile and Italy at about 30th percentile all of these are relatively better than what we see for other components although clearly (except for the UK and Germany) all of these are still bottom one third of their queue standings which we have to regard as very weak. We do however see strong improvements from their February levels: Greece is at a -15 compared with a -33 raw-reading in February, Portugal which is at a -15 reading compared with a -20 raw reading in February, and even Italy, at a -22 compared with a -28 raw- reading in February. We are seeing improvement in retailing in the countries that have been the most hard-hit by austerity.
Services sector 
The services metric for EMU improved to -9 in May from -11 in April that -9 reading stands at its February level as well. There were month-to-month improvements in Germany, in Italy, and in Portugal; a sharp improvement in the UK and Greece. But the ranking of the services index for EMU in May is in the lower 12 percentile of its historic queue. Generally the services readings by country are slightly better than for other components, except for retailing. Interestingly, the UK has the highest percentile standing in the 33.5th percentile compared to Germany which is second at the 32nd percentile Greece is in the 29th percentile, Spain in the 20th percentile, Italy in the 13th percentile, Portugal in the 10th percentile and France, which was unchanged on the month stands in the lower 5th percentile of its historic queue, an extremely weak reading. 
Construction 
The construction sector in EMU ranks in the 17 percentile of its historic queue unlike the other measures it fell in May to a -34 reading to a -32 reading and it's below its February reading. By country Germany is exceptionally strong in the top 1% of its historic queue for the construction sector! Italy's reading is basically tied with the UK in the 37th percentile of their respective queues. France's reading stands in the 28th percentile of its queue. And Spain that has had an absolute construction disaster has fallen below 1% of its historic queue for the construction sector.
Employment expectations...generally 
Employment expectations up-and-down the Zone's sectors whether measured in the current environment or for expectations - cut and presented many different ways - are generally ranking from the 30th to the 13th percentile of their respective historic queues. The exception is for industry where employment expectations are in the 43rd percentile which is still not a good reading but it's by far the best of the lot. From the consumer sentiment report unemployment expectations are, as mentioned earlier, in the top 22% of their historic queue.
Summing up 
The picture for EMU this month is of a region that is slightly better than it was in the last month or two but still generally worse than it was three months ago. While, there is a rather broad-based bounce recorded in May, we need to be careful about getting too carried away about what that signal really means. It certainly is too soon to say we turned the corner and to try to extrapolate trends. If you look at the chart at the top and try to block out particular calculations for particular months, most of the lines on the chart appear to have moved up from their lowest points of this cycle. For some, like France, it's a one month move. For most of the rest it's a multi month move but on a very shallow gradient. That shallow gradient means that the signal is not strong. It also indicates ongoing vulnerability. 

Away from the sheer numbers we continue to hear divisive language out of leaders from the various countries in the monetary union. France, Spain, Poland, Portugal, the Netherlands and Slovenia are all being given more time to complete their austerity plans by the EU. We can be hopeful that the worst of this might be behind us, but it would be foolish to expect to see improvement at anything other than a very slow pace at least based on the momentum that we see in this report. 

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The indices of sentiment and confidence in the EU area, for the Monetary Union sub-set, as well as for their key individual members, showed surprising resilience and strength in May. The overall EU index rose as the sentiment index [...]

EU Indices largely improve in May.

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 According to the National Association of Realtors (NAR), pending sales
 of single-family homes during April ticked up 0.3% (10.3% y/y) after a
 1.5% gain during March. The latest level was the highest since April 2010.
 The sales rebound since the removal in 2010 of the home buyers tax credit
 has raised home sales by more than one-third from the low.
 Last month's sales gain again reflected mixed performance around the
 country. Sales in the Northeast rose 11.5% (17.7% y/y) to a three-year high.
 Sales in the Midwest gained 3.2% (15.0% y/y) to the highest level of the
 economic expansion. To the downside, sales in the West plummeted 7.6% (-2.7%
 y/y) while sales in the South were down 1.1% (+12.2% y/y).
 Pending home sales figures are analogous to the new home sales
 data from the Commerce Department in that they measure existing home sales
 when the sales contract is signed, not at the time the sale is closed. The
 series dates back to 2001 and the data are available in Haver's PREALTOR database.&nbsp;
 

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 &nbsp;


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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
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 <tr>
 <th class="firstcol" scope="col" >Pending Home Sales
 (2001=100)</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >106.0</td>
 <td >105.7</td>
 <td >104.1</td>
 <td >10.3</td>
 <td >100.3</td>
 <td >90.2</td>
 <td >89.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Northeast</td>
 <td >92.3</td>
 <td >82.8</td>
 <td >82.8</td>
 <td >17.7</td>
 <td >79.1</td>
 <td >67.9</td>
 <td >70.9</td>
 </tr>
 <tr>
 <td class="firstcol" >Midwest</td>
 <td >107.1</td>
 <td >103.8</td>
 <td >103.5</td>
 <td >15.0</td>
 <td >95.9</td>
 <td >81.5</td>
 <td >79.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >South</td>
 <td >119.2</td>
 <td >120.5</td>
 <td >116.9</td>
 <td >12.2</td>
 <td >110.7</td>
 <td >98.3</td>
 <td >97.0</td>
 </tr>
 <tr>
 <td class="firstcol" >West</td>
 <td >94.6</td>
 <td >102.4</td>
 <td >101.4</td>
 <td >-2.7</td>
 <td >105.0</td>
 <td >104.1</td>
 <td >100.7</td>
 </tr>
 </tbody>
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According to the National Association of Realtors (NAR), pending sales of single-family homes during April ticked up 0.3% (10.3% y/y) after a 1.5% gain during March. The latest level was the highest since April 2010. The sales rebound [...]

U.S. Pending Home Sales Reach a New High

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 Initial unemployment insurance claims increased to 354,000 (-7.3%
 y/y) during the week ended May 25 from a revised 344,000, initially
 reported as 340,000. Consensus expectations were for 340,000 claims. The
 four week moving average of claims rose to 347,250 from 340,500. During
 the last ten years, there has been a 74% correlation between the level
 of claims and the m/m change in nonfarm payrolls.
 Continuing claims for unemployment insurance in the week ended May 18
 increased to 2.986M (-9.0% y/y) from the low of 2.923M. The four week
 moving average of continuing claims fell to a cycle-low of&nbsp; 2.987M.
 The insured rate of unemployment held at 2.3% where it's been for six
 weeks. This particular count covers only &quot;regular&quot; programs
 and does not include all extended benefit and other specialized jobless
 insurance programs. In the week of May 11, the latest figure available,
 the grand total of all benefit recipients ticked up w/w to 4.579M, (-25.4%
 y/y. That compares to a cycle peak of 12.060M in January 2010. The
 number of individuals who are collecting emergency and extended payments
 fell to a new low of 1.727 million (-34.1% y/y).
 By state, the insured unemployment rate continued to vary
 greatly with Nebraska (1.04%), Louisiana (1.13%), Virginia (1.22%),
 Texas (1.48%), Florida (1.53%), Tennessee (1.55%), South Carolina (1.67%)
 and Ohio (1.77%) at the low end of the range. At the high end were
 Michigan (2.10%), Maryland (2.29%), New York (2.52%), Illinois (2.67%),
 Wisconsin (2.62%), (Nevada 2.85%), California (2.89%) and New Jersey
 (3.15%).
 Data on weekly unemployment insurance are contained in Haver's WEEKLY
 database and they are summarized monthly in USECON. Data for
 individual states are in REGIONW. The consensus estimates come
 from the Action Economics survey, carried in the AS1REPNA
 database.&nbsp;&nbsp;
 

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Unemployment
 Insurance (000s)</th>
 <th scope="col" >05/25/13</th>
 <th scope="col" >05/18/13</th>
 <th scope="col" >05/11/13</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Initial Claims</td>
 <td>354</td>
 <td>344</td>
 <td>363</td>
 <td>-7.3</td>
 <td>375</td>
 <td>409</td>
 <td>459</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Continuing Claims</td>
 <td>--</td>
 <td>2,986</td>
 <td>2,923</td>
 <td>-9.0</td>
 <td>3,318</td>
 <td>3,744</td>
 <td>4,544</td>
 </tr>
 <tr>
 <td class="firstcol" >Insured Unemployment Rate (%)</td>
 <td>--</td>
 <td>2.3</td>
 <td>2.3</td>
 <td>2.6 
 (5/12)</td>
 <td>2.6</td>
 <td>3.0</td>
 <td>3.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Total &quot;All Programs&quot;
 (NSA)</td>
 <td>--</td>
 <td>--</td>
 <td>4.579M</td>
 <td>-25.4</td>
 <td>6.047M</td>
 <td>7.750M</td>
 <td>9.850M</td>
 </tr>
 </tbody>
 </table>
 
</body>
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Initial unemployment insurance claims increased to 354,000 (-7.3% y/y) during the week ended May 25 from a revised 344,000, initially reported as 340,000. Consensus expectations were for 340,000 claims. The four week moving average of [...]

U.S. Initial Claims for Unemployment Insurance Unexpectedly Notch Higher

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 Real GDP growth for last quarter was marginally
 revised to 2.4% (1.8% y/y) from the advance estimate of a 2.5% rise.
 Nevertheless, growth still improved from 0.4% at the end of the year.
 Expectations were for a 2.5% gain. Fewer military outlays and a smaller
 deterioration in the foreign trade account&nbsp; restrained growth last
 quarter. Inventory rebuilding, consumer spending and residential
 investment were firm. The increase in the GDP chain price index also was
 little-revised at a modest 1.1% (1.6% y/y).
 Posted for the first time, after tax corporate
 profits fell 2.0% (+4.0% y/y) following a 1.8% Q4 rise. The decline
 reflected weakness across sectors. Rest of world profits fell 7.3% (+4.1%
 y/y), domestic nonfinancial earnings were off 0.8% (+2.8% y/y) while
 earnings in the financial sector slipped 0.4% (+5.3% y/y).&nbsp;&nbsp; 
 The effect on GDP growth from inventory
 rebuilding was lessened to 0.6 percentage points from 1.0 points. This
 still did not recoup the 1.5 point subtraction during Q4. Trade deficit
 deterioration, however, lowered growth by a reduced 0.2 percentage points.
 It occurred as imports rose at an easier 1.9% rate (-0.1% y/y) while
 exports rose at a 0.8% rate (1.1% y/y), also lessened from the initial
 tally.

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 Final sales to domestic purchasers grew at an unrevised 1.9% rate (1.7%
 y/y). The advance continued to be held back by a 4.9% decline (-2.3% y/y)
 in government purchases. This drop reflected a 12.1% shortfall (-6.3% y/y)
 in national defense spending. It was accompanied by a deepened 2.4%
 decline (-1.2% y/y) in state &amp; local government outlays.&nbsp; 
 Growth in final sales to private domestic purchasers was unrevised at a
 firm 3.3% (2.6% y/y). That followed Q4's 3.6% increase. Consumer spending
 rose at a firmed 3.4% rate (2.1% y/y) led by a lessened 9.1% advance (7.3%
 y/y) in motor vehicle purchases. Consumption of home furnishings growth,
 however, was raised to 5.2% (3.6% y/y) while apparel consumption increased
 a little-changed 1.7% rate (0.1% y/y). Residential investment growth
 continued strong at a slightly-lessened 12.0% rate (12.8% y/y). Business
 fixed investment growth remained easier at 2.2% (4.1% y/y) following a
 13.1% rise during Q4.&nbsp;&nbsp;
 The GDP chain price index grew at a modest and marginally-changed 1.1%
 rate (1.6% y/y). That followed a 1.0% Q4 rise. This modest gain was
 largely influenced by a 1.0% increase (1.2% y/y) in the PCE price index,
 held back by lower energy prices. A firmed 6.7% rise (3.5% y/y) in the
 residential price index was countered by an unchanged 0.6% uptick (1.0%
 y/y) in the business fixed investment price index.&nbsp;
 The latest GDP figures can be found in Haver's USECON and USNA
 databases; USNA contains basically all of the Bureau of Economic
 Analysis' detail on the national accounts, including the new integrated
 economics accounts and the recently added GDP data for U.S. Territories.
 The Consensus estimates can be found in AS1REPNA.&nbsp;
 
 <a href="/comment/130530e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130530e.png"></a>
 <a href="/comment/130530f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130530f.png"></a>
 
 
 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
	
 <thead>
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM" ;>Chained
 2005 $, %, AR</a></th>
 <th scope="col" >Q1'13 (2nd Estimate)</th>
 <th scope="col" >Q1'13 (Advance)</th>
 <th scope="col" >Q4'12</th>
 <th scope="col" >Q3'12</th>
 <th scope="col" >Q1 Y/Y</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Gross Domestic Product</td>
 <td >2.4</td>
 <td >2.5</td>
 <td >0.4</td>
 <td >3.1</td>
 <td >1.8</td>
 <td >2.2</td>
 <td >1.8</td>
 <td >2.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Inventory Effect</td>
 <td >0.6</td>
 <td >1.0</td>
 <td >-1.5</td>
 <td >0.7</td>
 <td >-0.1</td>
 <td >0.2</td>
 <td >-0.2</td>
 <td >1.5</td>
 </tr>
 <tr>
 <td class="firstcol" >Final Sales</td>
 <td >1.8</td>
 <td >1.5</td>
 <td >1.9</td>
 <td >2.4</td>
 <td >1.9</td>
 <td >2.1</td>
 <td >2.0</td>
 <td >0.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Foreign Trade Effect</td>
 <td >-0.2</td>
 <td >-0.5</td>
 <td >0.3</td>
 <td >0.4</td>
 <td >0.2</td>
 <td >0.1</td>
 <td >0.2</td>
 <td >-0.4</td>
 </tr>
 <tr>
 <td class="firstcol" >Domestic Final Sales</td>
 <td >1.9</td>
 <td >1.9</td>
 <td >1.5</td>
 <td >1.9</td>
 <td >1.7</td>
 <td >1.9</td>
 <td >1.8</td>
 <td >1.3</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="9" >Demand Components</td>
 </tr>
 <tr>
 <td class="firstcol" >Personal Consumption</td>
 <td >3.4</td>
 <td >3.2</td>
 <td >1.8</td>
 <td >1.6</td>
 <td >2.1</td>
 <td >1.9</td>
 <td >2.5</td>
 <td >1.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Business Fixed Investment</td>
 <td >2.2</td>
 <td >2.1</td>
 <td >13.1</td>
 <td >-1.8</td>
 <td >4.1</td>
 <td >8.0</td>
 <td >8.6</td>
 <td >0.7</td>
 </tr>
 <tr>
 <td class="firstcol" >Residential Investment</td>
 <td >12.0</td>
 <td >12.6</td>
 <td >17.5</td>
 <td >13.6</td>
 <td >12.8</td>
 <td >12.1</td>
 <td >-1.4</td>
 <td >-3.1</td>
 </tr>
 <tr>
 <td class="firstcol" >Government Spending</td>
 <td >-4.9</td>
 <td >-4.1</td>
 <td >-7.0</td>
 <td >3.9</td>
 <td >-2.3</td>
 <td >-1.7</td>
 <td >-3.1</td>
 <td >0.6</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="9" >Chain-Type Price
 Index</td>
 </tr>
 <tr>
 <td class="firstcol" >GDP</td>
 <td >1.1</td>
 <td >1.2</td>
 <td >1.0</td>
 <td >2.7</td>
 <td >1.6</td>
 <td >1.8</td>
 <td >2.1</td>
 <td >1.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Personal Consumption Expenditures</td>
 <td >1.0</td>
 <td >0.9</td>
 <td >1.6</td>
 <td >1.6</td>
 <td >1.2</td>
 <td >1.8</td>
 <td >2.4</td>
 <td >1.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; PCE less Food &amp;
 Energy</td>
 <td >1.2</td>
 <td >1.2</td>
 <td >1.0</td>
 <td >1.1</td>
 <td >1.3</td>
 <td >1.7</td>
 <td >1.4</td>
 <td >1.5</td>
 </tr>
 </tbody>
 </table>



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Real GDP growth for last quarter was marginally revised to 2.4% (1.8% y/y) from the advance estimate of a 2.5% rise. Nevertheless, growth still improved from 0.4% at the end of the year. Expectations were for a 2.5% gain. Fewer [...]

U.S. GDP Growth Remains Moderate but Profits Decline

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 Forward momentum in consumer spending was lost in May. The
 International Council of Shopping Centers and Goldman Sachs reported that
 chain store sales slumped 0.9% last week (2.8% y/y). That was enough to
 pull sales so far this month 2.2% below the April average which was a
 record high. During the last ten years there has been a 61% correlation
 between the y/y change in chain store sales and the change in retail sales
 at general merchandise stores. That correlation recently has declined.
 General merchandise store sales account for 15% of total retail sales.
 The ICSC-Goldman Sachs 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.
 
 The chain store figures can be found in Haver's SURVEYW
 database.&nbsp;
 
 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >ICSC-Goldman Sachs (SA, 1977=100)</th>
 <th scope="col">05/25/13</th>
 <th scope="col">05/18/13</th>
 <th scope="col" >05/11/13</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Total Weekly Chain Store Sales</td>
 <td>543.1</td>
 <td>547.9</td>
 <td >546.9</td>
 <td >2.8%</td>
 <td >3.0%</td>
 <td >3.2%</td>
 <td >2.9%</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; W/W %</td>
 <td>-0.9</td>
 <td>0.2</td>
 <td >-2.0</td>
 <td >--</td>
 <td >--</td>
 <td >--</td>
 <td >--</td>
 </tr>
 </tbody>
 </table>


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Forward momentum in consumer spending was lost in May. The International Council of Shopping Centers and Goldman Sachs reported that chain store sales slumped 0.9% last week (2.8% y/y). That was enough to pull sales so far this month [...]

U.S. Chain Store Sales Remain Down Versus Last Month

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 Following earlier improvement, gasoline prices lost upward momentum last week. The price of
 regular gasoline slipped two cents to $3.65 per gallon and
 remained down just slightly versus last year. Prices remain below
 the $3.78 per gallon peak reached late in February. Haver Analytics
 constructs seasonal factors to account for seasonal volatility and
 the adjusted price ticked one penny higher w/w to $3.44 per gallon.
 
 Also, recently moving sideways was the
 price for light sweet crude oil. It ticked up last week to $95.09
 per barrel (4.4% y/y), close to where it's been for most of this
 year. Nevertheless, the price remained up from the June 2012 low of
 $80.29. Yesterday prices held at $95.01. Brent crude oil prices were
 roughly constant last week at $102.49 per barrel (-5.1% y/y) and
 were $103.89 yesterday.
 
 Natural gas prices jumped last week to $4.14 per mmbtu (59.0%
 y/y). They rose slightly yesterday at $4.17.
 The demand for gasoline fell 3.3% y/y last week. Residual
 fuel oil needs, used for heating, fell 7.9% y/y but distillate
 demand improved 2.5% y/y. Gasoline inventories jumped 9.8% y/y.
 
 The energy price data are reported by the U.S. Department of
 Energy and can be found in Haver's WEEKLY database. The daily
 figures are in DAILY and the gasoline demand figures are in OILWKLY.&nbsp;
 
 
 <a href="/comment/130529g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130529g.png"></a>
 <a href="/comment/130529h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/130529h.png"></a>
 &nbsp;


<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy
 Prices</th>
 <th scope="col" >05/27/13</th>
 <th scope="col" >05/20/13</th>
 <th scope="col" >05/13/13</th>
 <th scope="col" >Y/Y%</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Retail Regular Gasoline ($
 per Gallon, Regular)</td>
 <td >3.65</td>
 <td >3.67</td>
 <td >3.60</td>
 <td >-0.7</td>
 <td >3.62</td>
 <td >3.52</td>
 <td >2.78</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($
 per bbl.)</td>
 <td >95.09</td>
 <td >94.97</td>
 <td >96.17</td>
 <td >4.4</td>
 <td >94.20</td>
 <td >95.14</td>
 <td >79.51</td>
 </tr>
 <tr>
 <td class="firstcol" >Natural Gas ($/mmbtu)</td>
 <td >4.14</td>
 <td >3.95</td>
 <td >3.89</td>
 <td >59.0</td>
 <td >2.75</td>
 <td >3.99</td>
 <td >4.00</td>
 </tr>
 </tbody>
 </table>
 
</body>

</html>

Following earlier improvement, gasoline prices lost upward momentum last week. The price of regular gasoline slipped two cents to $3.65 per gallon and remained down just slightly versus last year. Prices remain below the $3.78 per [...]

U.S. Petroleum Prices Meander Sideways

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

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Michael J. Moran

260521M5.jpg

Housing starts fell 2.8% in April, but the drop followed a jump of 12% in March that had pushed activity to one of the firmest levels of the past few years. Even with the decline in April, starts remained in the upper end of the recent range. In fact, March and April combined brought the best two-month performance since late 2023.

The housing sector has been generally soft in the past few years. Activity was strong in late 2020 and 2021 as the economy recovered from the pandemic and as low interest rates boosted affordability. However, the market cooled in 2022 as the Fed tightened monetary policy, and home construction has been lethargic since then. The contribution of residential construction to GDP growth has been negative in seven of the past eight quarters (subtracting 0.1 percentage point on average). The improvement in multi-family activity offers the prospect of a positive contribution in the quarters ahead, but it would probably not be a large one. Single-family activity has a heavier weight in residential construction, and recent results have not been firm enough to suggest meaningful gains. 


260521M1.jpg

260521M2.jpg


Multi-family construction led the advance in the past two months, increasing 14.7% in March and 10.3% in April. The trend in multi-family starts had been moving sideways for a time (note the 6-month average in the left chart), but recent gains have quickened the pace, perhaps renewing the upward drift that began in 2024. Single-family construction stirred in March (up 10.7 percent), but it gave back much of the advance with a decline of 9.0% in April. Still, the six-month average of single family starts is tilting upward, although only mildly so.

The slight pick up in single-family starts is encouraging, but recent movement in building permits suggests caution. Single-family permits fell in both March and April, offsetting a hint of improvement in February and leaving little change in the six-month average (chart, lower right). Multi-family permits have moved erratically in recent months, but they are drifting higher on average.



260521M3.jpg

260521M4.jpg

- March & April brought the best two-month performance since late 2023
- Multi-family activity has led the advance; single-family activity lags


Housing Starts: Hints of Improvement

Andrew Cates

**Inflation angst and renewed bond market jitters**
The recent rise in US Treasury yields has coincided with a renewed upswing in US economic surprises, particularly on the inflation and labour market fronts. As chart 1 illustrates below, our newly developed and combined Haver US Labour Market Surprise Index and Inflation Surprise Index (see methodological note at the end of this document) has moved back into positive territory, indicating that incoming data for labour market activity and inflation have, on balance, been coming in stronger than consensus expectations. This rebound has occurred against an increasingly fragile global backdrop marked by rising oil prices, shipping disruptions and renewed geopolitical tensions linked to the Middle East conflict. Markets are becoming increasingly concerned that higher energy costs could feed into broader inflation pressures at a time when underlying labour market momentum remains firmer than many expected. 

260521Z1.jpg

**Central banks face renewed inflation concern**
A rise in short-term government bond yields has become increasingly broad-based across the major developed economies, with UK, US and Japanese two-year yields all trending higher in recent weeks. Investors are increasingly concerned that renewed geopolitical instability in the Middle East and higher energy prices could prolong global inflation pressures just as many central banks had been preparing for a gradual easing cycle. UK yields remain elevated amid persistent domestic inflation concerns, while Japanese yields have also continued to edge higher as markets reassess the outlook for Bank of Japan policy normalization in a world of rising imported energy costs. The synchronized move higher in front-end yields reflects growing unease that central banks may ultimately face a more difficult trade-off between supporting growth and containing another inflationary impulse.

260521Z2.jpg

**Weak labour bargaining power may limit inflation persistence**
Despite growing market anxiety about renewed inflation pressures, an important structural counterpoint comes from the continued weakness in labour’s share of US national income. As the next chart illustrates, labour’s share of nonfarm business income has declined to multi-decade lows. Historically, sustained inflation cycles have often been associated with stronger labour bargaining power, rising wage shares and the emergence of wage-price dynamics. Today, however, workers appear to retain relatively limited pricing power within the broader economy, particularly compared with earlier inflationary eras such as the 1970s. This may help explain why longer-term inflation expectations have, so far, remained relatively contained despite higher energy prices and geopolitical instability. 

At the same time as this, the prolonged decline in labour’s share of income may also help explain the broader rise of populist politics across many advanced economies. Weak wage growth relative to profits, rising inequality and a growing perception that the gains from globalization and asset appreciation have been unevenly distributed have contributed to mounting political dissatisfaction. 

260521Z3.jpg

**Energy markets remain under strain**
Yet the principal counterargument to the more benign inflation outlook suggested by weak labour bargaining power lies on the supply side — most notably in energy markets. As the chart shows, oil prices have remained elevated even as broader measures of geopolitical risk have started to retreat from their recent extremes. The Caldara-Iacoviello Geopolitical Risk Index suggests that fears of a major regional escalation in the Middle East have eased somewhat. However, Brent crude prices continue to reflect persistent disruption to energy flows and shipping routes, particularly given the ongoing effective closure and disruption surrounding the Strait of Hormuz. This divergence matters because financial markets and central banks are increasingly confronting the possibility that supply-side inflation pressures may persist even without a further escalation in military conflict. In other words, fading war fears do not necessarily imply a normalization in energy markets. Instead, the global economy may be entering a more prolonged period of structurally higher energy and transport costs, adding to inflation pressures even as underlying demand conditions soften. The result is an increasingly uncomfortable backdrop for policymakers, combining weaker growth momentum with renewed upside risks to inflation and interest rates.

260521Z4.jpg

**Benign Core CPI Inflation For Now**
Ultimately, what will matter most for central banks is not simply higher oil prices themselves, but the extent to which those higher costs feed through into broader underlying inflation. On that front, the recent inflation data from several advanced economies have, so far, remained remarkably benign. As the chart illustrates, core inflation measures pubished this week in the UK, Canada and Austria have all continued to moderate despite renewed geopolitical tensions and rising energy prices. This suggests that the broader inflationary impulse across goods, services and wages remains contained for now.

260521Z5.jpg

**The AI Investment Boom**
Yet even as markets grapple with inflation risks, energy shocks and slowing global demand, financial markets continue to be dominated by one extraordinarily powerful countervailing force: the AI investment boom. As the chart illustrates, capital expenditure among the major technology firms — including Meta, Oracle, Amazon, Alphabet and Microsoft — has exploded higher over the past several years as the race to build generative AI infrastructure intensifies. Collectively, these firms have spent almost $1.5 trillion on capital expenditure since early 2021, with spending in Q1 2026 alone reaching an extraordinary $179 billion, nearly double the level of a year earlier.

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Ongoing geopolitical tensions in the Middle East and the associated surge in energy prices have pushed inflation and bond market concerns back to the forefront of global financial markets. Investors are increasingly worried that central banks may now face even greater difficulty in bringing inflation fully under control, particularly in economies where underlying price pressures had already remained sticky prior to the latest energy shock. Recent upside surprises in US labour market and inflation data have already contributed to higher Treasury yields and a broader global backup in short-term government bond yields across the major economies (charts 1 and 2). Yet the picture is not entirely one-sided. Labour’s share of US national income remains historically weak, suggesting limited underlying wage bargaining power and helping explain why broader inflation persistence could ultimately remain contained (chart 3). Meanwhile, oil prices have remained elevated despite some moderation in broader geopolitical risk indicators, reflecting persistent supply-side disruption and ongoing stress surrounding key global energy and shipping routes (chart 4). Even so, recent core inflation data from economies including the UK, Canada and Austria suggest that pass-through from higher energy costs into broader underlying inflation has so far remained relatively limited (chart 5). At the same time, financial markets continue to be supported by an extraordinary AI-driven investment boom, with technology firms engaged in an unprecedented surge in spending on data centres, semiconductors and energy infrastructure (chart 6). Increasingly, the global economy appears caught between two powerful and competing forces: renewed supply-side inflation risks on one side and a historic wave of AI-driven technological investment on the other.

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Charts of the Week: Surprise, Surprise

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined by 3,000 to 209,000 in the week ending May 16, from 212,000 in the week ending May 9, revised from 211,000. The four-week average declined by 1,500 to 202,500 in the week ending May 16, from 204,000 the May 9 week, revised marginally from 203,750. The Action Economics/Haver Analytics Survey looked for 210,000 claims to have been filed. 

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 6,000 to 1.782 million in the week ending May 9, from 1.776 million in the week ending May 2, revised from 1.782 million. The four-week moving average declined to 1.773 million in the latest week from 1.780 in the May 2 week, revised from 1.781 million. The four-week moving average reached the lowest level since January 2024. The insured unemployment rate was unchanged at 1.2% in the week of May 9. Except for a one-week dip to 1.1% in the week of April 25, the insured unemployment rate has been at 1.2% since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending May 2, the highest unemployment rates were in New Jersey (2.17%) and Washington (2.11%). The lowest rates were in Florida and South Dakota (both 0.30%), Louisiana (0.32%), Alabama (0.35%), Arkansas (0.37%), North Carolina (0.38%), Tennessee (0.47%) and Iowa, Kansas, Virginia and Virgin Islands (all 0.48%). Rates in other notable states include California (1.97%), New York (1.61%), Illinois (1.51%), Pennsylvania (1.26%), and Texas (1.01%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.



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- New claims declined by 3,000 to 209,000 in the week ending May 16.
- Continuing claims rose by 6,000 to 1.782 million.
- The insured unemployment rate was unchanged at 1.2% in the week of May 9.


U.S. Initial Unemployment Claims Declined in the Week of May 16

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CPI inflation in the UK eased sharply in April with the headline making no change at all and the core rising by only 0.1%. The headline is a marked departures from March when the UK CPI rose by 0.4% as the core put in another good month, rising 0.1%. Sequentially, UK inflation as measured by the CPIH has been relatively stable with a 3% growth rate over 12 months, a 3% annual rate over three-months, and a gain of 2.9% annualized over six-months; it's about as steady as you can get. The core (CPH excluding energy, food, alcohol, and tobacco) rises 2.9% over 12 months, eases to a 2.7% annual rate over six-months, then rises at a 2% annual rate over three-months.

**Low inflation amid a global surge in oil prices**
The core is showing significant temperance and sequential improvement. Meanwhile, globally oil prices are flaring sharply, and most countries are seeing inflation rates rise. An energy cap in the UK is holding energy costs down and helping to keep the headline rate of inflation low. However, the cap can only work its magic for so long, eventually persisting strength in oil prices are going to show through into the headline index.

**Acceleration tendencies abate**
In April, 50% of the categories of the CPI H showed acceleration compared to March; in March only 41% had accelerated compared to February; in February only 41% had accelerated compared to January. On a broad basis, inflation acceleration has been substantially neutralized or controlled. Sequential calculations show that over three-months acceleration has occurred in 50% of the categories, over six-months and 12-months, however, acceleration has occurred in only 33% of the categories, indicating that there has been a relatively long-lived environment of inflation temperance.

**Still Too high**
However, inflation in the UK remains relatively high. The HICP measure, which is comparable to the measures used on the continent by the European Central Bank, has a 69th-percentile standing when ranked on data back to 2000. The CPIH has a 75.1-percentile standing and the CPIH-core has an 81.5 percentile standing. These are based on year-over-year percent changes and the two inflation gauges.

Inflation rankings tell us that inflation in the UK is still relatively high compared to how it has performed over the last 25 years. However, what's most important is inflation relative to the target of 2%. At 3% the inflation rate is too high and at 2.9% the core inflation rate is too-high as well. However, we see the shorter-term inflation rates particularly for the core have come down. The core rate over three-months has even reached the 2% mark, which is both encouraging and surprising. The UK economy has been performing poorly. The Bank of England will certainly be making its next monetary policy decision based on the performance of inflation with some assessment and how the trend is faring as well as with reference to economic performance which has been marginal. We will have to see how the BOE looks at the effect of the energy cap. At the same time there's a great deal of political turmoil in the UK to pair with difficult global geopolitical conditions


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United Kingdom

UK CPIH Eases Amid Global Oil Price Shock 

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Mortgage applications declined 2.3% w/w (+18.9% y/y) in the week ending May 15, after rising 1.7% w/w (15.5% y/y) in the week ending May 8, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house dropped 4.1% w/w (+8.0% y/y) in the May 15 week, following a rise of 3.9% w/w (6.7% y/y) in the May 8 week.  Applications for loan refinancing edged down 0.1% w/w (+34.8% y/y) in the latest week after declining 0.8% w/w (+28.3% y/y) in the May 8 week.

The effective interest rate on a 30-year fixed-rate loan rose 9bps to 6.73% in the week ending May 15 from 6.64% in the week ending May 8. The rate on 15-year fixed-rate mortgages rose 12bps to 6.11% in the latest week from 5.99% in the week ending May 8. The 30-year Jumbo rate rose 5bps to 6.69% in the May 15 week from 6.64% in the May 8 week. The rate on a 5-year ARM also rose 5bps to 6.07% in the latest week from 6.02% in the week ending May 8.

The share of applications for refinancing an existing loan rose to 41.9% of total applications in the week of May 15 from 40.8% in the May 8 week. The adjustable-rate mortgage (ARM) share of activity rose to 9.6% in the May 15 week from 8.8% in the week ending May 8.

The average size of a mortgage loan declined 1.4% w/w (+3.5% y/y) to $403,200 in the week ending May 15, after retrenching 0.5% w/w (+2.9% y/y) to $409,000 in the week ending May 8. The average size of a purchase loan edged down 0.1% w/w (+4.6% y/y) to $466,900 in the latest week from $467,200 in the May 8 week. The average size of a loan to refinance a mortgage declined 3.0% w/w (+8.1% y/y) to $314,700 in the May 15 week from $324,500 in the May 8 week. 

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.


- Both applications for loans to purchase and applications for loan refinancing declined in the latest week.
- Interest rate on 30-year fixed-rate loans rose 9bps to 6.73%. 
- Average loan size declined.


Economy in Brief: 2013

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