Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060525a.jpg" width="353">
During 1Q06 the U.S. economy grew 5.3% (AR), faster than the initially estimated 4.8% which was an acceleration from 1.7% during 4Q05. The increase fell short of Consensus expectations for a revision to 5.8% and growth of 3.0-3.5% is widely forecast for 2Q.
Corporate profits jumped 7.9% (23.8% y/y) during 1Q. Strength was pronounced for US financial corporations whose profits soared 17.5% (19.4% y/y). Nonfinancial corporate profitability also posted a robust 4.6% (29.3% y/y) gain as profit margins rose to another record high. Overseas profits recovered 4.3% (12.4% y/y) following a 6.5% decline during 4Q. 
Inventories subtracted a lesser 0.1% from GDP growth during 1Q versus the initial estimate of a 0.5% subtraction.
The 0.6 percentage point subtraction from a wider foreign trade deficit also was less than the initially estimated 0.8 percentage points. Growth in exports was revised up to 14.7% (8.1% y/y) and import growth of 12.8% (6.6% y/y) was little changed.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060525b.jpg" width="353">
Domestic demand growth was lessened to 5.7% from 5.9% estimated initially due to lowered estimates of growth in personal consumption and business investment.
Growth in personal consumption expenditures was revised down to 5.2% (3.4% y/y) from 5.5%. The estimate of growth in spending on services was reduced to 2.2% (2.6% y/y) from 2.8% while estimates of strong spending in most goods categories were little changed.
Growth in business fixed investment also was reduced to a still strong 13.8% (10.0% y/y) from 17.9% estimated last month. Growth in spending on structures was halved to 11.4% (4.8% y/y). Residential investment grew 3.0% (5.9% y/y).
The estimate of the GDP chain price index was unchanged at 3.3%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">1Q &#39;06 (Prelim.)</th>
<th scope="col">1Q &#39;06 (Advance)</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>5.3%</td>
<td>4.8%</td>
<td>1.7%</td>
<td>3.6%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>1.9%</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>5.5%</td>
<td>5.4%</td>
<td>-0.2%</td>
<td>3.8%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.6%</td>
<td>-0.8%</td>
<td>-1.4%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>5.7%</td>
<td>5.9%</td>
<td>1.1%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.5%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


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During 1Q06 the U.S. economy grew 5.3% (AR), faster than the initially estimated 4.8% which was an acceleration from 1.7% during 4Q05. The increase fell short of Consensus expectations for a revision to 5.8% and growth of 3.0-3.5% is [...]

1Q US GDP Growth Revised Up, Profits Soared

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060525a.jpg" width="353">
During 1Q06 the U.S. economy grew 5.3% (AR), faster than the initially estimated 4.8% which was an acceleration from 1.7% during 4Q05. The increase fell short of Consensus expectations for a revision to 5.8% and growth of 3.0-3.5% is widely forecast for 2Q.
Corporate profits jumped 7.9% (23.8% y/y) during 1Q. Strength was pronounced for US financial corporations whose profits soared 17.5% (19.4% y/y). Nonfinancial corporate profitability also posted a robust 4.6% (29.3% y/y) gain as profit margins rose to another record high. Overseas profits recovered 4.3% (12.4% y/y) following a 6.5% decline during 4Q. 
Inventories subtracted a lesser 0.1% from GDP growth during 1Q versus the initial estimate of a 0.5% subtraction.
The 0.6 percentage point subtraction from a wider foreign trade deficit also was less than the initially estimated 0.8 percentage points. Growth in exports was revised up to 14.7% (8.1% y/y) and import growth of 12.8% (6.6% y/y) was little changed.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060525b.jpg" width="353">
Domestic demand growth was lessened to 5.7% from 5.9% estimated initially due to lowered estimates of growth in personal consumption and business investment.
Growth in personal consumption expenditures was revised down to 5.2% (3.4% y/y) from 5.5%. The estimate of growth in spending on services was reduced to 2.2% (2.6% y/y) from 2.8% while estimates of strong spending in most goods categories were little changed.
Growth in business fixed investment also was reduced to a still strong 13.8% (10.0% y/y) from 17.9% estimated last month. Growth in spending on structures was halved to 11.4% (4.8% y/y). Residential investment grew 3.0% (5.9% y/y).
The estimate of the GDP chain price index was unchanged at 3.3%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">1Q &#39;06 (Prelim.)</th>
<th scope="col">1Q &#39;06 (Advance)</th>
<th scope="col">4Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>5.3%</td>
<td>4.8%</td>
<td>1.7%</td>
<td>3.6%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>1.9%</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>5.5%</td>
<td>5.4%</td>
<td>-0.2%</td>
<td>3.8%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.6%</td>
<td>-0.8%</td>
<td>-1.4%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>5.7%</td>
<td>5.9%</td>
<td>1.1%</td>
<td>3.8%</td>
<td>3.9%</td>
<td>4.4%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.5%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
U.S. Existing Home Sales Decline As Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 25, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060525c.jpg" width="353">
 The National Association of Realtors reported that April total existing home sales declined 2.0% m/m to 6.760M following little change in March that was little revised. The gain was in line with Consensus expectations for 6.78M sales.
Sales of single-family homes fell 2.0% after a slight March dip. The data cover sales closed in the latest and previous months, and contrast to the new home sales data which count sales at the signing of a contract. 
Sales declines were widespread throughout the country. In the Northeast, sales reversed all of the prior month&#39;s gain with a 4.5% drop (-3.4% y/y). Sales in the Midwest more than reversed the prior month&#39;s gain and fell 3.4% (-4.1% y/y). In the South sales fell 0.8% (-2.4% y/y) for the third consecutive monthly drop and sales in the West were unchanged (-12.8% y/y).
The median price of an existing single-family home rose 2.5% (4.3% y/y). Prices are not seasonally adjusted.
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Home Sales</td>
<td>&nbsp;6,760</td>
<td>6,900</td>
<td>-5.7%</td>
<td>7,064</td>
<td>6,722</td>
<td>6,176</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>5,920</td>
<td>6,040</td>
<td>-5.6%</td>
<td>6,170</td>
<td>5,912</td>
<td>5,443</td>
</tr>
<tr class="odd">
<td class="firstcol">Single Family Median Home Price (000) </td>
<td>$222.7 </td>
<td>$217.2 </td>
<td>4.3% </td>
<td>$206.3</td>
<td>$182.8 </td>
<td>$169.1 </td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Back Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 25, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060525d.jpg" width="353">
Last week, initial unemployment insurance claims fell 40,000 to 329,000 due to the resolution of a partial government shutdown in Puerto Rico. The drop reversed nearly all of the prior week&#39;s little revised rise. Consensus expectations had been for 315,000 claims.
The four week moving average of initial claims rose to 337,000 (0.9% y/y).
Continuing claims for unemployment insurance increased 38,000 following a revised 1,000 rise during the prior week.
The insured rate of unemployment ticked up to 1.9% following two weeks at 1.8%.
Financial literacy, testimony of Federal Reserve Board Chairman Ben S. Bernanke, can be found <a href="http://www.federalreserve.gov/boarddocs/testimony/2006/20060523/default.htm"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">05/20/06</th>
<th scope="col">05/13/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>329</td>
<td>369</td>
<td>0.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,420</td>
<td>-6.7%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
New Zealand Trade Deficit Diminishes as Gains in Dairy Exports Help Offset Petroleum Imports 
by <a href="/comment/Stone.html">Carol Stone</a> May 25, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060525e.jpg" width="353">
 New Zealand&#39;s trade balance improved in April, according to data reported this morning in Wellington by Statistics New Zealand. Markets and analysts focus on rolling 12-month totals for New Zealand, and the trade deficit on that basis narrowed to NZ$6.90 billion for the year ended April from NZ$7.05 billion in March. The April figure was the smallest deficit this year although much wider than the NZ$4.30 billion of April 2005.
 As evident in both the graph and the table below, cumulative exports are little changed over the last year, but imports are up some 7.7%. Petroleum accounts for a big part of this: the value of those imports has increased by nearly 26%. The largest single import item is vehicles, and these purchases have actually decreased from a year ago, to NZ$5.15 billion from NZ$5.52 billion.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060525f.jpg" width="353">
 New Zealand is largely a service and agricultural economy. The trade balance improvement, which started in March, owes mainly to gains in dairy product exports: milk powder, butter and cheese. These had an aggregate total of NZ$5.48 billion in April compared with NZ$5.04 billion a year ago. Machinery, aluminum and beverage exports also rose.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060525g.jpg" width="353">
 These data, all from Statistics New Zealand, are contained in Haver&#39;s ANZ database, along with our Australia data offerings. This database includes only series that come from the countries&#39; own data sources. For some major countries that do not seasonally adjust certain data, Haver performs that procedure; these supplemental data are contained in the database G10. This latter collection includes key data summaries for 22 countries, the Euro-Zone and several regional groupings. For New Zealand, Haver&#39;s calculations show the trade deficit for the month of April alone was NZ$217 million, the smallest since NZ$173 million in January 2005. The reduction from March in the seasonally adjusted deficit from NZ$380 million consisted of a slim NZ$32 million decrease in exports and a more significant NZ$197 million drop in imports.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ANZ/@A2/@A209/@A209.HTM">New Zealand, NZ$</a></th>
<th scope="col">Apr 2006</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Apr 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">12-Month Totals (Bil): Trade Balance</td>
<td>-6.90</td>
<td>-7.05</td>
<td>-7.32</td>
<td>-4.30</td>
<td>-6.46</td>
<td>-4.20</td>
<td>-3.38</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>31.33</td>
<td>31.10</td>
<td>30.71</td>
<td>31.20</td>
<td>30.82</td>
<td>30.71</td>
<td>28.40</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>38.22</td>
<td>38.16</td>
<td>38.03</td>
<td>35.50</td>
<td>37.27</td>
<td>34.91</td>
<td>31.78</td>
</tr>
<tr>
<td class="firstcol">Individual Months, SA* (Mil): Trade Balance</td>
<td>-217</td>
<td>-380</td>
<td>-772</td>
<td>-368</td>
<td colspan="3">Monthly Averages</td>
</tr>
<tr class="odd">
<td class="firstcol">-539</td>
<td>-350</td>
<td>-282</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>2852</td>
<td>2886</td>
<td>2600</td>
<td>2643</td>
<td>2568</td>
<td>2560</td>
<td>2366</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>3069</td>
<td>3266</td>
<td>3372</td>
<td>3011</td>
<td>3107</td>
<td>2910</td>
<td>2648</td>
</tr>
</tbody>
</table>


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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524f.jpg" width="353">
Two widely followed industrial surveys in Europe showed a slight pause in their May results, following marked improvements in the prior couple of months. They also both indicated continuing firmness in export sectors, but some hesitation in domestic activity.
The UK&#39;s Confederation of British Industry (CBI) reports that the balance on total industry orders is -12 for May, down from April&#39;s -11, but obviously much better than anytime in the previous year. Within total orders, those for exports gained dramatically, reaching a neutral value for the first time since February 1996. Thus, the UK is seeing significant and persistent improvement in export demand, but this month&#39;s gain there, combined with the decline in the overall orders balance, shows that the domestic sector faltered. In total then, the progress in manufacturing remains tenuous.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524g.jpg" width="353">
The German organization Ifo, which specializes in applied economic research, reports that in its latest survey, the overall Business Climate Index edged down to 105.6 this month from 105.9 in April (2000=100), corresponding to diffusion balance figures of +10.4% and +11.0%, respectively. As Louise Curley noted here a month ago, these are the best readings since the spring of 1991; manufacturing, despite a slight downtick this month, is experiencing the best readings in the total history of the survey.
Details are not yet available for the factors in the Ifo survey, but as shown in the table below, wholesale trade continues to gain, while retail trade has moderated. This suggests that as in the UK, domestic demand -- at least consumption -- remains fragile, while broader industry is still advancing. Businesses also report to Ifo that they are less confident about activity in the next six months; the business expectations index decreased 3 points from 13.4% in April to 10.4% in May, which also is the lowest since January. The business situation index, in contrast, continues to increase, showing that current activity is expanding at more and more firms.
We&#39;d guess that skepticism over the outlook is related to energy prices and to the recent surge in the euro. While the latter wouldn&#39;t correspond to assessments of better export performance, it also might foster more imports, to the detriment of local industry. So, despite the recent gains in both Germany and the UK, it&#39;s not hard to understand that business leaders remain cautious.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Balance, SA</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">Mar 2006</th>
<th scope="col">May 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">UK CBI Total Orders</td>
<td>-12</td>
<td>-11</td>
<td>-16</td>
<td>-22</td>
<td>-21</td>
<td>-9</td>
<td>-29</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>0</td>
<td>-13</td>
<td>-12</td>
<td>-17</td>
<td>-21</td>
<td>-13</td>
<td>-33</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">German Ifo Business Climate </td>
<td>10.4</td>
<td>11.0</td>
<td>10.0</td>
<td>-15.7</td>
<td>-9.7</td>
<td>-9.9</td>
<td>-17.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>19.4</td>
<td>20.7</td>
<td>19.2</td>
<td>-5.6</td>
<td>1.2</td>
<td>4.4</td>
<td>-7.9</td>
</tr>
<tr>
<td class="firstcol">Wholesale Trade</td>
<td>12.4</td>
<td>10.8</td>
<td>9.7</td>
<td>-16.6</td>
<td>-9.9</td>
<td>-16.6</td>
<td>-25.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Trade</td>
<td>-5.7</td>
<td>-5.2</td>
<td>-1.8</td>
<td>-35.1</td>
<td>-28.0</td>
<td>-30.7</td>
<td>-22.5</td>
</tr>
<tr>
<td class="firstcol">Services*</td>
<td>22.5</td>
<td>23.5</td>
<td>21.0</td>
<td>4.0</td>
<td>8.1</td>
<td>6.5</td>
<td>-0.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Two widely followed industrial surveys in Europe showed a slight pause in their May results, following marked improvements in the prior couple of months. They also both indicated continuing firmness in export sectors, but some [...]

UK and German Business Confidence Gains Pause in May; Export Demand Favorable

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524e.jpg" width="353">
The total number of mortgage applications fell a hard 6.0% last week and pulled the average level in May 1.0% below April.
Purchase applications cratered 7.1% w/w but in May remained 0.3% ahead of April which rose 1.1% versus March.
During the last ten years there has been a negative 80% correlation between the interest rate level on 30-year financing and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance reversed about half of the prior week&#39;s rise with a 4.3% decline. The May level is 2.8% below the April average which fell 4.1% from March.
The effective interest rate on a conventional 30-year mortgage retraced all of the prior week&#39;s increase and fell back to 6.84% while the rate on 15-year financing fell to 6.52%. Rates have risen roughly 50 basis points since year end 2005. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">05/19/06</th>
<th scope="col">05/12/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>552.6</td>
<td>588.0</td>
<td>-24.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>396.4</td>
<td>426.7</td>
<td>-9.1%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,480.5</td>
<td>1,546.8</td>
<td>-31.7%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications fell a hard 6.0% last week and pulled the average level in May 1.0% below April. Purchase applications cratered 7.1% w/w but in May remained 0.3% ahead of April which rose 1.1% versus March. [...]

Mortgage Applications Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524c.jpg" width="353">
New home sales during April again posted an unexpected gain. The 4.9% m/m increase to 1.198 million (SAAR) followed a revised 12.0% rise during March which was revised down slightly. The increased contrasted to Consensus expectations for 1.15M sales.
The latest sales level was 12.4% below last July&#39;s peak and sales so far this year were 11.5% below the 2005 average.
April sales in the Northeast rose 8.2% (-33.3% y/y) and in the West sales rose 2.0% (-12.6% y/y). Sales down South (+6.7% y/y) were notably strong with a 7.8% m/m gain but sales in the Midwest fell 1.1% (-16.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524d.jpg" width="353">
The number of homes for sale surged for the second month by 2.4% (27.0% y/y). Again in the Northeast the number of homes for sale jumped, by 1.9% (63.6% y/y).
The median sales price of a new home recovered 2.8% (0.9% y/y) following a 6.2% March decline.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,198</td>
<td>1,142</td>
<td>-5.7%</td>
<td>1,280</td>
<td>1,201</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$238,500</td>
<td>$232,000</td>
<td>0.9%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
</tbody>
</table>
</body>
</html>

New home sales during April again posted an unexpected gain. The 4.9% m/m increase to 1.198 million (SAAR) followed a revised 12.0% rise during March which was revised down slightly. The increased contrasted to Consensus expectations [...]

New Home Sales Again Rose Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524a.jpg" width="353">
New orders for durable goods fell 4.8% last month, giving back much of the upwardly revised 6.6% March increase. Nevertheless, durable orders in April remained up 11.3% versus last year and for the first four months of this year orders also were 11.2% ahead of 2005. Consensus expectations had been for a 0.5% April decline.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.
A 32.2% (+99.5% y/y) drop in orders for nondefense aircraft &amp; parts led last month&#39;s decline in total orders. In addition, new orders for motor vehicles &amp; parts dropped 1.6% (+2.1% y/y).
Less the transportation sector altogether, durable goods orders fell 1.1% and gave back a piece of the upwardly revised March gain.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524b.jpg" width="353">
Orders for computers &amp; electronic products gave back all of an upwardly revised March gain and fell 10.4% (+10.0% y/y). Machinery orders, however, fell just 0.2% (+12.1% y/y) after a 5.7% April increase that was little revised. Electrical equipment orders rose for the first month in three, up 5.2% (15.7% y/y), while orders for primary metals jumped 3.2% (16.6% y/y).
Orders for nondefense capital goods gave back half of the prior month&#39;s surge with a 6.0% drop while orders less aircraft fell 1.7% but remained 9.4% ahead of the year ago level. During the last ten years there has been an 86% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Shipments of durable goods fell 0.9% (+6.0% y/y) following two months of 0.3% gain. Less the transportation sector shipments fell 0.1% (+8.1% y/y) for the second consecutive month. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Order backlogs jumped 1.5% (23.0% y/y), again reflecting a surge in nondefense aircraft &amp; parts (75.1% y/y). Less transportation backlogs were strong again and posted a 1.1% (13.7% y/y) rise. The ratio of backlogs to shipments outside of transportation jumped to the highest level in two years.
Durable inventories increased 0.8% (2.9% y/y). Less transportation inventories also rose 0.8% (3.3% y/y) and the inventory to sales ratio outside of the transportation sector rose for the second month.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>-4.8%</td>
<td>6.6%</td>
<td>11.3%</td>
<td>9.0%</td>
<td>6.4%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.1%</td>
<td>3.5%</td>
<td>10.3%</td>
<td>9.4%</td>
<td>7.6%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-6.0%</td>
<td>11.9%</td>
<td>18.6%</td>
<td>21.4%</td>
<td>5.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-1.7%</td>
<td>3.6%</td>
<td>9.4%</td>
<td>12.3%</td>
<td>2.8%</td>
<td>-2.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

New orders for durable goods fell 4.8% last month, giving back much of the upwardly revised 6.6% March increase. Nevertheless, durable orders in April remained up 11.3% versus last year and for the first four months of this year [...]

New Orders for U.S. Durable Goods Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524a.jpg" width="353">
New orders for durable goods fell 4.8% last month, giving back much of the upwardly revised 6.6% March increase. Nevertheless, durable orders in April remained up 11.3% versus last year and for the first four months of this year orders also were 11.2% ahead of 2005. Consensus expectations had been for a 0.5% April decline.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.
A 32.2% (+99.5% y/y) drop in orders for nondefense aircraft &amp; parts led last month&#39;s decline in total orders. In addition, new orders for motor vehicles &amp; parts dropped 1.6% (+2.1% y/y).
Less the transportation sector altogether, durable goods orders fell 1.1% and gave back a piece of the upwardly revised March gain.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524b.jpg" width="353">
Orders for computers &amp; electronic products gave back all of an upwardly revised March gain and fell 10.4% (+10.0% y/y). Machinery orders, however, fell just 0.2% (+12.1% y/y) after a 5.7% April increase that was little revised. Electrical equipment orders rose for the first month in three, up 5.2% (15.7% y/y), while orders for primary metals jumped 3.2% (16.6% y/y).
Orders for nondefense capital goods gave back half of the prior month&#39;s surge with a 6.0% drop while orders less aircraft fell 1.7% but remained 9.4% ahead of the year ago level. During the last ten years there has been an 86% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Shipments of durable goods fell 0.9% (+6.0% y/y) following two months of 0.3% gain. Less the transportation sector shipments fell 0.1% (+8.1% y/y) for the second consecutive month. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Order backlogs jumped 1.5% (23.0% y/y), again reflecting a surge in nondefense aircraft &amp; parts (75.1% y/y). Less transportation backlogs were strong again and posted a 1.1% (13.7% y/y) rise. The ratio of backlogs to shipments outside of transportation jumped to the highest level in two years.
Durable inventories increased 0.8% (2.9% y/y). Less transportation inventories also rose 0.8% (3.3% y/y) and the inventory to sales ratio outside of the transportation sector rose for the second month.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>-4.8%</td>
<td>6.6%</td>
<td>11.3%</td>
<td>9.0%</td>
<td>6.4%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-1.1%</td>
<td>3.5%</td>
<td>10.3%</td>
<td>9.4%</td>
<td>7.6%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-6.0%</td>
<td>11.9%</td>
<td>18.6%</td>
<td>21.4%</td>
<td>5.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-1.7%</td>
<td>3.6%</td>
<td>9.4%</td>
<td>12.3%</td>
<td>2.8%</td>
<td>-2.0%</td>
</tr>
</tbody>
</table>
New Home Sales Again Rose Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524c.jpg" width="353">
New home sales during April again posted an unexpected gain. The 4.9% m/m increase to 1.198 million (SAAR) followed a revised 12.0% rise during March which was revised down slightly. The increased contrasted to Consensus expectations for 1.15M sales.
The latest sales level was 12.4% below last July&#39;s peak and sales so far this year were 11.5% below the 2005 average.
April sales in the Northeast rose 8.2% (-33.3% y/y) and in the West sales rose 2.0% (-12.6% y/y). Sales down South (+6.7% y/y) were notably strong with a 7.8% m/m gain but sales in the Midwest fell 1.1% (-16.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524d.jpg" width="353">
The number of homes for sale surged for the second month by 2.4% (27.0% y/y). Again in the Northeast the number of homes for sale jumped, by 1.9% (63.6% y/y).
The median sales price of a new home recovered 2.8% (0.9% y/y) following a 6.2% March decline.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,198</td>
<td>1,142</td>
<td>-5.7%</td>
<td>1,280</td>
<td>1,201</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$238,500</td>
<td>$232,000</td>
<td>0.9%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
</tbody>
</table>
Mortgage Applications Recovered 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524e.jpg" width="353">
The total number of mortgage applications fell a hard 6.0% last week and pulled the average level in May 1.0% below April.
Purchase applications cratered 7.1% w/w but in May remained 0.3% ahead of April which rose 1.1% versus March.
During the last ten years there has been a negative 80% correlation between the interest rate level on 30-year financing and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance reversed about half of the prior week&#39;s rise with a 4.3% decline. The May level is 2.8% below the April average which fell 4.1% from March.
The effective interest rate on a conventional 30-year mortgage retraced all of the prior week&#39;s increase and fell back to 6.84% while the rate on 15-year financing fell to 6.52%. Rates have risen roughly 50 basis points since year end 2005. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">05/19/06</th>
<th scope="col">05/12/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>552.6</td>
<td>588.0</td>
<td>-24.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>396.4</td>
<td>426.7</td>
<td>-9.1%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,480.5</td>
<td>1,546.8</td>
<td>-31.7%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
UK and German Business Confidence Gains Pause in May; Export Demand Favorable 
by <a href="/comment/Stone.html">Carol Stone</a> May 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524f.jpg" width="353">
Two widely followed industrial surveys in Europe showed a slight pause in their May results, following marked improvements in the prior couple of months. They also both indicated continuing firmness in export sectors, but some hesitation in domestic activity.
The UK&#39;s Confederation of British Industry (CBI) reports that the balance on total industry orders is -12 for May, down from April&#39;s -11, but obviously much better than anytime in the previous year. Within total orders, those for exports gained dramatically, reaching a neutral value for the first time since February 1996. Thus, the UK is seeing significant and persistent improvement in export demand, but this month&#39;s gain there, combined with the decline in the overall orders balance, shows that the domestic sector faltered. In total then, the progress in manufacturing remains tenuous.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060524g.jpg" width="353">
The German organization Ifo, which specializes in applied economic research, reports that in its latest survey, the overall Business Climate Index edged down to 105.6 this month from 105.9 in April (2000=100), corresponding to diffusion balance figures of +10.4% and +11.0%, respectively. As Louise Curley noted here a month ago, these are the best readings since the spring of 1991; manufacturing, despite a slight downtick this month, is experiencing the best readings in the total history of the survey.
Details are not yet available for the factors in the Ifo survey, but as shown in the table below, wholesale trade continues to gain, while retail trade has moderated. This suggests that as in the UK, domestic demand -- at least consumption -- remains fragile, while broader industry is still advancing. Businesses also report to Ifo that they are less confident about activity in the next six months; the business expectations index decreased 3 points from 13.4% in April to 10.4% in May, which also is the lowest since January. The business situation index, in contrast, continues to increase, showing that current activity is expanding at more and more firms.
We&#39;d guess that skepticism over the outlook is related to energy prices and to the recent surge in the euro. While the latter wouldn&#39;t correspond to assessments of better export performance, it also might foster more imports, to the detriment of local industry. So, despite the recent gains in both Germany and the UK, it&#39;s not hard to understand that business leaders remain cautious.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Balance, SA</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">Mar 2006</th>
<th scope="col">May 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">UK CBI Total Orders</td>
<td>-12</td>
<td>-11</td>
<td>-16</td>
<td>-22</td>
<td>-21</td>
<td>-9</td>
<td>-29</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>0</td>
<td>-13</td>
<td>-12</td>
<td>-17</td>
<td>-21</td>
<td>-13</td>
<td>-33</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">German Ifo Business Climate </td>
<td>10.4</td>
<td>11.0</td>
<td>10.0</td>
<td>-15.7</td>
<td>-9.7</td>
<td>-9.9</td>
<td>-17.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>19.4</td>
<td>20.7</td>
<td>19.2</td>
<td>-5.6</td>
<td>1.2</td>
<td>4.4</td>
<td>-7.9</td>
</tr>
<tr>
<td class="firstcol">Wholesale Trade</td>
<td>12.4</td>
<td>10.8</td>
<td>9.7</td>
<td>-16.6</td>
<td>-9.9</td>
<td>-16.6</td>
<td>-25.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Trade</td>
<td>-5.7</td>
<td>-5.2</td>
<td>-1.8</td>
<td>-35.1</td>
<td>-28.0</td>
<td>-30.7</td>
<td>-22.5</td>
</tr>
<tr>
<td class="firstcol">Services*</td>
<td>22.5</td>
<td>23.5</td>
<td>21.0</td>
<td>4.0</td>
<td>8.1</td>
<td>6.5</td>
<td>-0.4</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060523c.jpg" width="353">
Several confidence indicators were released today--consumer and business indicators for the Netherlands and Slovenia, consumer confidence for Italy and business confidence for France.
Consumer confidence rose in both the Netherlands and in Slovenia in May, but confidence remains weak in both countries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060523e.jpg" width="353"> Pessimists continue to outweigh optimists. In the Netherlands the excess of pessimists declined from 6% to 4%, while in Slovenia, the comparable figures were 19% and 15%. The first chart shows consumer confidence in the Netherlands and Slovenia, expressed as the percent balance between pessimists and optimists. Consumers in Italy also were slightly more optimistic in May than in April. The ISAE (Instituto de Studie Analisi Economica) Index of consumer confidence rose from 106.0 in April (1980=100) to 107.6 in May. Once again, it is clear from the second chart that the overall mood of the Italian consumer is subdued.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060523d.jpg" width="353">
Both the Netherlands and Slovenia have also reported measures of business confidence. In both countries, those looking for improvement in the outlook have been greater than those looking for a deterioration since the last half of 2005. The percent balance, however, weakened in May. In the Netherlands the excess of optimists over pessimists fell from 6.1% in April to 3.3% in May. In Slovenia, the comparable figures were 7% and 6%. Business confidence measures in the two countries are shown in the third chart. In France, the INSEE (Institut de la Statistique et des Etudes Economiques) Monthly Business Survey also showed some weakness in business confidence. The percent balance of those responding to questions on the general outlook in manufacturing declined from 2% in April to 1% in May.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J5.HTM">Japan:</a></th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M DIF </th>
<th scope="col">Y/Y DIF</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">The Netherlands (% Bal)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Consumer Confidence</td>
<td>-4</td>
<td>-6</td>
<td>-22</td>
<td>2</td>
<td>18</td>
<td>-22</td>
<td>-25</td>
<td>-35</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Business Confidence</td>
<td>3.3</td>
<td>6.1</td>
<td>0.8</td>
<td>-2.8</td>
<td>2.5</td>
<td>0.6</td>
<td>-0.1</td>
<td>-5.6</td>
</tr>
<tr>
<td class="firstcol">Slovenia (% Bal)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Consumer Confidence</td>
<td>-15</td>
<td>19</td>
<td>14</td>
<td>4 </td>
<td>-1</td>
<td>-20</td>
<td>-19</td>
<td>-20</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Business Confidence</td>
<td>6</td>
<td>7</td>
<td>-1</td>
<td>-1 </td>
<td>7</td>
<td>-0</td>
<td>1</td>
<td>-4</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy (1980=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Consumer Confidence</td>
<td>106.7</td>
<td>106.0</td>
<td>104.2</td>
<td>1.51* </td>
<td>3.26*</td>
<td>104.2</td>
<td>101.4</td>
<td>106.1</td>
</tr>
<tr class="odd">
<td class="firstcol">France&nbsp; (% Bal)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Business Outlook&nbsp;</td>
<td>1</td>
<td>2</td>
<td>-23</td>
<td>-1</td>
<td>24</td>
<td>-12</td>
<td>5</td>
<td>-29</td>
</tr>
</tbody>
</table>
</body>
</html>

Several confidence indicators were released today--consumer and business indicators for the Netherlands and Slovenia, consumer confidence for Italy and business confidence for France. Consumer confidence rose in both the Netherlands [...]

Dutch, Slovene and Italian Consumers a Little More Confident: Dutch, Slovene, and French Business a Little Less So

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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Andrew Cates

**A Tug of War Between AI Hope and Geopolitical Shock**
The latest Blue Chip Economic Indicators survey highlights a growing divergence between economies benefiting from AI-driven optimism and those more exposed to the inflationary consequences of renewed geopolitical instability. Taiwan stands out as the clearest AI beneficiary, with growth forecasts revised sharply higher while inflation expectations have risen only modestly, reflecting surging semiconductor demand and continued investment in global technology supply chains. China also remains relatively resilient, supported by ongoing AI-related capital spending and stronger technology sectors. By contrast, the euro area and UK have seen much larger upward revisions to inflation forecasts alongside weaker or declining growth expectations, underscoring their greater vulnerability to the recent Middle East shock and higher energy costs. Korea sits somewhere in between: benefiting from the AI hardware cycle but still exposed to trade and energy headwinds. Overall, the chart illustrates the increasingly important push-and-pull shaping the global outlook: AI optimism and productivity hopes on one side, and geopolitical fragmentation, energy insecurity and supply-side inflation pressures on the other.

260513Z1.jpg

**Forecasters See Contained Pass-Through**
Against this backdrop, our latest Blue Chip special question sought to gauge whether economists believe the recent rise in energy prices will remain largely contained — or whether it risks spilling more meaningfully into underlying global inflation dynamics. The results suggest forecasters have become somewhat less concerned about a broad and persistent inflationary impulse since April. A larger share of respondents in the May survey now expect only a “limited and temporary” pass-through into core inflation, while the proportion anticipating “moderate and persistent” effects has declined noticeably. Very few panelists expect significant second-round effects, implying that most still believe inflation expectations and wage-setting behaviour remain relatively well anchored. In part, this reflects confidence in central bank credibility and the view that softer global demand conditions will constrain firms’ pricing power. Yet the persistence of a sizeable minority still expecting moderate pass-through underscores the uncomfortable tension facing policymakers. 

260513Z2.jpg

**Energy Reawakens as a US Inflation Driver**
While survey respondents generally expect only limited pass-through from higher energy prices into broader inflation, the latest US CPI data provide a reminder that the process may already be underway at the margin. April’s CPI report showed core inflation coming in slightly firmer than expected, suggesting underlying price pressures remain more persistent than many policymakers had hoped. The decomposition of CPI inflation highlights that services continue to dominate overall inflation dynamics, reflecting still-elevated wage and labour-intensive price pressures across the economy. However, the more notable recent development has been the renewed contribution from energy prices, which had previously acted as a disinflationary force through much of 2025. Food inflation has also remained comparatively steady, while non-energy goods prices continue to exert only modest upward pressure despite ongoing tariff and supply-chain concerns. Taken together, the data reinforce the idea that the US economy is not facing a classic demand collapse, but rather a more uncomfortable supply-side environment in which geopolitical energy shocks risk colliding with still-resilient domestic demand, AI-related investment spending and sticky service-sector inflation.

260513Z3.jpg

**AI: The Powerful Counterweight to Geopolitical Headwinds**
If rising energy prices and geopolitical instability represent one major force shaping the current macroeconomic outlook, the extraordinary surge in AI-related investment represents the other. The latest data from Our World in Data show global private investment in AI accelerating sharply again in 2025, reaching close to $300 billion — more than double the level seen just two years earlier. The United States continues to dominate the global AI landscape, accounting for the overwhelming majority of private investment spending, while China and Europe remain considerably smaller contributors despite continued growth. The scale and speed of the 2025 increase is particularly striking given the broader backdrop of elevated policy uncertainty, trade fragmentation and concerns about slowing global productivity growth. In effect, the global economy is now being pulled in two competing directions: on one side, geopolitical tensions, supply-chain fragilities and more recent energy shocks are weighing on confidence and raising supply-side costs; on the other, AI enthusiasm is driving an enormous wave of capital expenditure, infrastructure build-out and technology-related demand. This helps explain why growth expectations — particularly in the US and parts of Asia — have remained comparatively resilient despite an increasingly uncertain global environment.

260513Z4.jpg

**Industrial Winners and Losers in a Fragmenting Global Economy**
The divergence in industrial performance across advanced economies has become increasingly striking. Taiwan has emerged as one of the clearest beneficiaries of the global AI boom, with industrial production surging as semiconductor demand, data-centre investment and advanced electronics exports continue to accelerate. Denmark has also significantly outperformed, though for very different reasons, with the extraordinary global success of its pharmaceutical sector — particularly weight-loss and diabetes drugs — driving a powerful expansion in manufacturing output. By contrast, the UK and Germany have experienced a far weaker industrial recovery. In both cases, elevated energy costs and greater dependence on imported energy have weighed heavily on industrial competitiveness since the post-pandemic energy shock. Germany’s large manufacturing sector has been particularly exposed to higher natural gas prices and weaker external demand, while the UK has continued to struggle with a combination of high energy costs, weak productivity growth and subdued business investment. The chart highlights an increasingly important feature of the global economy: countries exposed to powerful structural growth themes such as AI or pharmaceuticals are pulling away from those still burdened by energy dependence and deteriorating industrial competitiveness.

260513Z5.jpg

**China’s Pulse Is Picking Up Again**
China’s economic backdrop has shown clearer signs of improvement in recent months, with both the Citigroup Economic Surprise Index and the Yicai High Frequency Economic Activity Index moving higher. The rebound suggests that incoming data have begun consistently outperforming expectations after a prolonged period of disappointment. Part of the recent improvement likely reflects the cumulative effects of policy easing, including targeted fiscal support, infrastructure spending and further efforts to stabilise the property sector. Export demand has also remained more resilient than many expected, helped in part by the continued strength of global technology and AI-related supply chains. At the same time, improving domestic mobility and energy usage indicators point to firmer underlying activity momentum. The Yicai index itself is designed to provide a near real-time pulse of the Chinese economy using a basket of high-frequency indicators including subway usage, air pollution, coal consumption, freight activity, unemployment and bankruptcy trends. While China still faces significant structural headwinds — including weak household confidence, property-sector fragilities and deflationary pressures — the recent pickup suggests that growth momentum may be stabilising at a time when several other major economies are becoming more vulnerable to geopolitical and energy-related shocks.

260513Z6.jpg

The global economy is still caught between two powerful and competing forces. On one side, the AI investment boom continues to support growth, industrial activity and equity markets, particularly in the US and parts of Asia. On the other, renewed Middle East tensions and higher energy prices are adding to inflation risks and broader policy uncertainty. The latest Blue Chip survey reflects this divide clearly: growth expectations have generally held up best in economies tied to AI-related investment and technology supply chains, while inflation forecasts have risen more sharply in more energy-exposed economies such as the UK and euro area (chart 1). Forecasters still largely expect only limited pass-through from higher energy prices into core inflation, although recent US CPI data suggest underlying price pressures remain somewhat sticky (charts 2 and 3). At the same time, the extraordinary continued surge in global AI investment — now approaching $300 billion annually — highlights the sheer scale of capital being deployed into semiconductors, data centres and digital infrastructure, particularly in the United States (chart 4). The divergence in industrial production trends also reinforces the growing gap between economies benefiting from structural growth drivers — such as Taiwan’s semiconductor sector and Denmark’s pharmaceutical industry — and those struggling with higher energy costs and weaker competitiveness, notably Germany and the UK (chart 5). Meanwhile, improving Chinese activity indicators suggest policy support and stronger technology demand may finally be helping to stabilise growth (chart 6). Overall, the world economy remains resilient, but increasingly uneven, with AI-related investment continuing to offset — though not eliminate — the drag from geopolitical fragmentation and rising energy insecurity.

Charts of the Week: The Tug of War

Sandy Batten

260514v5.jpg

260514w5.jpg

Total retail sales rose a solid 0.5% m/m (4.9% y/y) in April on top of a slightly downwardly revised 1.6% monthly jump in March (previously 1.7%), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 05% m/m gain. Excluding autos, other sales increased 0.7% m/m (6.3% y/y) in April following an unrevised 1.9% monthly jump in March. Expectations were for a 0.6% monthly increase. The strong performance in March and the additional solid gain in April put the April level up 7.8% at an annual rate from the Q1 average, providing a very solid start for Q2.

As expected, the continued rise in retail gasoline prices boosted gasoline sales further in April. Gasoline sales increased 2.8% m/m in April following a 13.7% m/m surge in March and accounted for more than 40% of the April increase in total sales. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.3% m/m in April versus a 0.7% monthly gain in March. Sales excluding both autos and gasoline increased 0.5% m/m in April following a 0.7% m/m rise in March.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in March, rising 0.5% m/m in April following an upwardly revised 0.8% m/m increase in March (previously (0.7% m/m). The solid performances of the control group sales in March and April provide a strong start to Q2. April control-group sales are 5.4% at an annual rate above the Q1 average, in line with the 5.7% annualized increase in Q1. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales across major sectors were varied in April. Consumers clearly spent more on necessities, owing largely to higher prices. Food sales increased 0.8% m/m in April on top of a 1.0% m/m rise in March. And as already noted, gasoline sales posted another outsized monthly increase. By contrast, department store sales slumped 3.2% m/m, clothing sales fell 1.5% m/m, auto sales declined 0.4% m/m and furniture sales fell 2.0% m/m. More encouragingly, sales of nonstore retailers rose 1.1% m/m, their fourth consecutive solid monthly gain. And sales at restaurants increased 0.6% m/m in April, their third consecutive monthly rise. Analysts frequently use restaurant sales as a barometer of consumer attitudes, believing that consumers would not eat out regularly if they were under serious financial stress.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.


260514x5.jpg

260514y5.jpg

- Total sales increase 0.5% m/m in April after a 1.6% monthly jump in March.
- Gasoline sales rose 2.8% m/m in April on top of a 13.7% surge in March.
- Auto sales fell 0.4% m/m after a 0.6% m/m rise in March.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in April versus a 0.7% m/m rise in March.
- Sales of the retail control group that is used to construct PCE rose 0.5% m/m in April and are 5.4% annualized above the Q1 average, providing a good start to Q2.


U.S. Retail Sales Slowed in April But Remained Solid

Kathleen Stephansen, CBE

260514a8.jpg

260514b8.jpg


Initial claims for unemployment insurance rose by 12,000 to 211,000 in the week ending May 9, from 199,000 in the week ending May 2, revised from 200,000. The four-week average rose 750 to 203,750 in the week ending May 9, from 203,000 the May 2 week, revised from 203,250. The Action Economics/Haver Analytics Survey looked for 205,000 claims to have been filed. 

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 24,000 to 1.782 million in the week ending May 2, from 1.758 million in the week ending April 25, revised from 1.766 million. The four-week moving average declined to 1.781 million in the latest week from 1.788 million in the April 25 week. The four-week moving average reached the lowest level since May 2024. The insured unemployment rate rose back to 1.2% in the week of May 2 from the one-week dip to 1.1% in the April 25 week. It had 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 April 25, the highest unemployment rates were in Rhode Island (2.29%), New Jersey and Massachusetts (both 2.20%), and Washington (2.15%). The lowest rates were in Florida and Louisiana (both 0.31%), South Dakota (0.32%), Alabama and Arkansas (both 0.36%), North Carolina (0.38%), Tennessee (0.47%) and Iowa, Kansas and Virginia (all 0.48%). Rates in other notable states include California (1.99%), New York (1.66%), Illinois (1.56%), Pennsylvania (1.28%), and Texas (1.03%). 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.


260514c8.jpg

260514d8.jpg

- New claims rose by 12,000 to 211,000.
- Continuing claims rose by 24,000 to 1.782 million.
- The insured unemployment rate was back up to 1.2% in the week of May 2, from the one-week dip to 1.1% the prior week.

U.S. Initial Unemployment Claims rose in the Week of May 9

Robert Brusca

260514e.jpg

UK GDP grew by 2.5% in 2026-Q1. GDP growth quarterly was last this strong in 2024-Q2 and last stronger in 2024-Q1. This is the strongest quarterly growth in about two years. Private consumption surged in 2026-Q1, rising at a 2.4% annual rate. Capital formation and housing each backed off in the last two quarters. This is the opposite form the US where investment is strongly pushing growth ahead.

On the international side of the ledger, UK exports rose at a 0.4% annualized rate in the quarter while imports rose by a strong 2.6% annual rate, still, viewed on its own, domestic demand rose at a 3.2% annual rate.

Domestic demand growth has picked up to over 1% at 1.5% on a year-over-year basis. That is a good development. However, it is still a weak showing. Over the last 26 years domestic demand’s Year-on-year gain ranks at its 30th-percentiel; it has been weaker than this only about 30% of the time. But over the last nearly four-years the 1.5% gain is just below its median. This gives some indication of how weak growth has been in the post-Covid period. The UK was still in a post Brexit environment, when it had to deal with Covid, the invasion of Ukraine, and now the Middle East. At the same time, it has had a considerable amount of its own political turmoil and still does. 

The chart above shows the snake crawl of GDP that continues to depict growth in the EMU area. That is a continuing weak environment- one of the UK’s important export markets. Europe’s fixation on social welfare spending and the need to tax to pay for it has robbed the economy of its dynamism. Still, both the UK and the Euro-Area continue to have lingering inflation issues. And both show current inflation in an upswing. 

**Central bankers' inflation and growth** 
Central banks are playing a waiting game, the best that they can. Major money center country central banks have been consistently overshooting their inflation targets since Covid. And despite excess inflation banks have been reluctant to hike rates and have instead pursued a strategy of persisting slow rate reduction. It has been a curious period in which central banks have kept their inflation target goals but simply have been content to miss their targets in the short run and promise to thit them in the long run. This is clearly a policy of only temporary usefulness because it is bound to blow up, the longer inflation fails to be controlled at its targeted pace. For now, UK interest rates remain higher than in Europe, closer to the level in the US and with a monetary policy committee that seems determined to stop the overshoot as oil prices flare. We’ll see if the BOE MPC members are really ready to pull the trigger on higher rates as UK GDP growth looks firmer. 



United Kingdom

UK Q1 GDP Growth Steps Up  

Michael J. Moran

260513M9.jpg

260513N9.jpg

The Producer Price Index surged 1.4% in April, far in excess of the expected increase of 0.5%. Energy prices accounted for much of the increase with a jump of 7.8%, a much sharper change than the advance of 3.8% in the CPI. The marked difference between the energy components of the CPI and the PPI was primarily due to the nature of the customers. The Consumer Price Index, naturally, collects prices paid by individuals; the PPI, in addition to individuals, collects prices paid by businesses, governments, and exporters. Energy prices paid by governments and exporters rose sharply (12.1% and 15.8%, respectively). The PPI also showed a sharp increase in energy prices paid by individuals (6.1% versus 3.8% in the CPI).

Service prices also contributed to the high-side surprise in the PPI, posting an increase of 1.2%. This area often moves erratically, but still the latest move can be viewed as unusual, as it marked the second largest increase in service prices since the current structure of the PPI began in 2010 (three other observations were close with increases of 1.1%; the largest increase was 1.3% during the inflation burst in 2022).

Goods prices other than energy items were tame compared with service prices, but they too were unsettling. This grouping posted an increase of 0.6%, a reading in the upper end of the range from the past few years. The increase, although pronounced, was not broadly based. In a list of 53 non-energy goods provided by the BLS, only 13 posted increases of 0.4% or more, although a handful were especially sharp (electronic components 8.1%, industrial chemicals 4.4%, household furniture 1.8%).

Food represented the only major grouping that was not troubling, registering an increase of 0.2%. 


260513O9.jpg

260513P9.jpg

- The energy component led the sharp increase in the PPI, but it had support from many other areas
- Excluding energy, most service prices rose sharply; prices of non-energy goods also were under pressure
- The food component went against the grain with an increase of only 0.2%


Economy in Brief: 2006

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1Q US GDP Growth Revised Up, Profits Soared

1Q US GDP Growth Revised Up, Profits Soared

UK and German Business Confidence Gains Pause in May; Export Demand Favorable

Mortgage Applications Recovered

New Home Sales Again Rose Unexpectedly

New Orders for U.S. Durable Goods Fell

New Orders for U.S. Durable Goods Fell

Dutch, Slovene and Italian Consumers a Little More Confident: Dutch, Slovene, and French Business a Little Less So