Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519a.jpg" width="353">
The May Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed rose modestly, for the second month, to 14.4 from an unrevised 13.2 last month. The gain surpassed Consensus expectations for a decline to 12.5.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
The index reflected improvement in delivery times and inventories. However, declines in other sub indexes were broad based; new orders, shipments and employment each fell to the lowest levels since last Summer. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519b.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index surged to the highest level since last September. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell and reversed roughly half of the improvement in April. Expectations for employment fell sharply to the lowest level since August 2002..
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0506.html">here</a>.
The rise in the Philly Fed index ran counter to the m/m improvement, reported Monday, in the May Empire State Manufacturing index of general business conditions. The Richmond Fed will report its May Mfg. Survey index next week. The reading will follow two months of sharp improvement, notably in orders, shipments and jobs and the figures will be available in the Haver SURVEYS database.
During the last ten years there has been a 57% correlation between the Richmond survey index level and the change in factory sector industrial production, nationally. The latest Richmond Fed Mfg. Survey is available <a href="http://www.richmondfed.org/research/regional_conditions/manufacturing_conditions/index.cfm"> here</a>.
The Richmond Fed also publishes indexes of conditions in the Service Sector and the latest release is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm"> 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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>14.4</td>
<td>13.2</td>
<td>10.3</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>55.3</td>
<td>29.0</td>
<td>32.0</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
Chicago Fed Nat'l Activity Index Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 19, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519c.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago improved during April on the prior month&#39;s recovery. It rose to 0.38 from 0.35 and a 1Q average of 0.24.
The three-month moving average of the CFNAI rose to 0.25 from 0.24 the prior month.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_May2006.pdf">here</a>.
The Evolving Nature of the Financial System: Financial Crises and the Role of the Central Bank, yesterday&#39;s speech from the newly designated Vice Chairman of the Federal Reserve Board Donald L. Kohn, is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/200605182/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.38</td>
<td>0.35</td>
<td>0.06</td>
<td>0.20</td>
<td>0.37</td>
<td>-0.11</td>
</tr>
</tbody>
</table>
Japan's Growth Gains Footing on Rise in Domestic Demand 
by <a href="/comment/Stone.html">Carol Stone</a> May 19, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519d.jpg" width="353">
Japan&#39;s GDP surprised on the upside for Q1, in data reported today by the Japanese Cabinet Office. It expanded at a 1.9% annual rate. While this was less than Q4&#39;s 4.3%, it well exceeded forecasters&#39; views that anticipated about 1.2%. The yen gained briefly on the report.
Notably, the driving force in the growth was private domestic demand, led by business investment. This component had fallen in Q4 and rebounded sharply in Q1, at a 5.8% annual rate. That put it 4.6% ahead of a year ago. Household consumption moderated from Q4, increasing at a 1.6% annual pace relative to 2.6% in Q4. Together, private domestic demand grew 3.2% on the quarter (annualized) and was also up 3.2% from a year ago.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060519e.jpg" width="353">
Also of significance, growth of exports slowed from Q4&#39;s large 16.2% to &quot;just&quot; 11.3%. At the same time, imports switched from a modest decline in Q4 to a 12.6% rate of increase. Exports are substantially larger than imports, so these adverse moves did not keep the net export surplus from increasing, although the rise was very modest: only &yen;308 million on a base of &yen;18.1 billion.
Markets were encouraged that the domestic economy appears to be picking up steam. The price deflator is still falling, however, although this may be due in the most recent period by the surge in imported energy costs. The deflator for domestic demand is holding just about even with year-earlier levels. With these price signals still mixed, Bank of Japan officials remain skittish about whether the economy could stand higher borrowing costs; when they issued a statement to this effect later today, FX traders pushed the yen back down once again.

<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/JAPAN/@J2/@J2.HTM">Chain GDP % Chg,</a> &nbsp;Annual Rates*</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Year/ Year</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>1.9</td>
<td>4.3</td>
<td>0.6</td>
<td>3.1</td>
<td>2.6</td>
<td>2.3</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Household Consumption</td>
<td>1.6</td>
<td>2.6</td>
<td>1.8</td>
<td>1.2</td>
<td>1.7</td>
<td>0.6</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Government Consumption</td>
<td>0.6</td>
<td>0.4</td>
<td>2.0</td>
<td>0.8</td>
<td>1.7</td>
<td>2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">Private Plant &amp; Equipment</td>
<td>5.8</td>
<td>-0.9</td>
<td>5.2</td>
<td>4.6</td>
<td>7.7</td>
<td>4.9</td>
<td>5.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>11.3</td>
<td>16.2</td>
<td>12.9</td>
<td>13.7</td>
<td>7.0</td>
<td>13.9</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>12.6</td>
<td>-2.5</td>
<td>13.3</td>
<td>8.0</td>
<td>6.3</td>
<td>8.5</td>
<td>3.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Domestic Demand</td>
<td>3.2</td>
<td>3.0</td>
<td>-0.0</td>
<td>3.2</td>
<td>3.2</td>
<td>2.2</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The May Index of General Business Conditions in the manufacturing sector from the Philadelphia Fed rose modestly, for the second month, to 14.4 from an unrevised 13.2 last month. The gain surpassed Consensus expectations for a decline [...]

Philadelphia Fed Business Activity Up

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/060518d.jpg" width="353">
Yesterday, the report of US CPI for April set off a firestorm in financial markets as participants were hit with a bad case of inflation-itis. Today&#39;s Canadian CPI contained some of the same ingredients, but unlike the US&#39;s, Canada&#39;s &quot;core&quot; rate was actually weaker than expected. The total index was up just under 0.5% for the month, with the yearly rate ahead 2.4%, somewhat more than March&#39;s 2.2%. Dramatically, however, its &quot;core&quot; index was unchanged for the month and actually slowed on the year from 1.7% in March to 1.6%.
Canada&#39;s &quot;core&quot; inflation is defined by the Bank of Canada and is used directly as a monetary policy target. It excludes eight of the most volatile items, such as fresh fruits and vegetables, gasoline and mortgage interest rates. See the footnote beneath the table for the complete list.
Within the total index, energy prices played a major role in the monthly gain: all energy was up 6.9% (not seasonally adjusted), and separate data on actual retail gasoline prices show an increase of 13.7% to C$1.0675/liter, only the fourth month ever that the price has exceeded C$1.00/liter (the other three instances were just last year: August, September and October).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518e.jpg" width="353">
In discussing the surprising softness of the core measure, some press reports indicated a role for the Canadian dollar. It has strengthened noticeably against the US dollar, not just recently, but basically since the middle of 2002. It also moved up versus the euro from the middle of 2004 through the end of last year. So indeed, the strong currency could be helping Canadian inflation. We look at two components where imports have a significant influence, clothing and recreation. Clothing prices have been falling consistently and in April were 3% below a year earlier. By contrast in the US, the apparel category has declined much less over the last two years. Recreation is another Canadian sector with a trade component, as its residents travel south to Florida and other such destinations and residents of other areas come to Canada. The related prices in Canada are falling slowly, but their pattern changed distinctly soon after the the Canadian dollar turned upward. The chart shows &quot;traveler accommodation&quot; together with the US$ exchange rate; the two series have a remarkable 60% correlation since 1995.
All of Haver&#39;s Canadian monthly data are in CANSIM, an extensive collection of Statistics Canada&#39;s copyrighted series. Exchange rates can be found in USECON, DAILY, INTDAILY and the weekly counterparts of the latter two, as well as in CANSIM.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Canada CPI, % Changes*</th>
<th scope="col">Apr 2006</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Year/ Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">All Items</td>
<td>0.46</td>
<td>0.31</td>
<td>-0.23</td>
<td>2.44</td>
<td>2.15</td>
<td>2.12</td>
<td>1.99</td>
</tr>
<tr class="odd">
<td class="firstcol">All Items less 8 Volatiles**</td>
<td>0.00</td>
<td>0.23</td>
<td>0.16</td>
<td>1.58</td>
<td>1.59</td>
<td>1.70</td>
<td>2.15</td>
</tr>
<tr>
<td class="firstcol">Clothing</td>
<td>-0.50</td>
<td>-0.70</td>
<td>-0.69</td>
<td>-3.02</td>
<td>-0.93</td>
<td>-3.10</td>
<td>0.20</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation, etc.</td>
<td>0.00</td>
<td>0.00</td>
<td>-0.16</td>
<td>-0.16</td>
<td>-0.24</td>
<td>0.32</td>
<td>0.40</td>
</tr>
<tr>
<td class="firstcol">Memo: Can$/US$ Month Avg</td>
<td>1.1438</td>
<td>1.1574</td>
<td>1.1489</td>
<td>1.2397 (2/2005)</td>
<td colspan="3">December</td>
</tr>
<tr class="odd">
<td class="firstcol">1.1610</td>
<td>1.2191</td>
<td>1.3128</td>
</tr>
</tbody>
</table>
</body>
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Yesterday, the report of US CPI for April set off a firestorm in financial markets as participants were hit with a bad case of inflation-itis. Today's Canadian CPI contained some of the same ingredients, but unlike the US's, Canada's [...]

Canada CPI: Up with Energy, But Restrained by Strong Currency

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518b.jpg" width="353">
For April, the Conference Board&#39;s Composite Index of Leading Economic Indicators dipped 0.1% following a 0.4% March rise, initially reported as a 0.1% decline. Consensus expectations had been for a 0.1% April up tick.
Six month growth in the leaders fell to 2.9% from an upwardly revised 4.8% the prior month. During the last ten years there has been a 43% correlation between the six-month change in the leading indicators and quarterly growth in real GDP.
The breadth of one month gain amongst the 10 components of the leading index halved to 35% in April. Over a six month span 80% of the index components have risen. A large positive contribution from vendor performance was offset by lower building permits, lower consumer sentiment and a lower real money supply.Most of the remaining index components had little m/m impact on the change in the leaders.
The spread between yields on the 10 year Treasury Note and Fed funds made a minimal 0.02 percentage point positive contribution to the leaders. The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518c.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% for the third consecutive month. All of the four component series rose last month and during the last six months. During the last ten years there has been a 64% correlation between the change in the coincident indicators and real GDP growth.
The lagging indicators increased 0.3% following a revised 0.1% March increase. Last month, 78.6% of the series&#39; components rose while the ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell slightly.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Today&#39;s speech titled Basel II: Its Promise and Its Challenges by Federal reserve Board Chairman Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060518/default.htm"> here</a>

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">6 Month Chg., AR</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">Leading</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>2.9%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.5%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.1%</td>
<td>1.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
</body>
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For April, the Conference Board's Composite Index of Leading Economic Indicators dipped 0.1% following a 0.4% March rise, initially reported as a 0.1% decline. Consensus expectations had been for a 0.1% April up tick. Six month growth [...]

Leading Economic Indicators Dip, March Revised Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518a.jpg" width="353">
Initial unemployment insurance claims surged 42,000 last week to 367,000 due to a partial government shutdown in Puerto Rico. The shutdown added 46,000 claims and has been resolved. Consensus expectations had been for 316,000 claims.
The Labor Department indicated that excluding claims related to the government shutdown in Puerto Rico seasonally adjusted initial claims would have been closer to 312,000.
The latest figure is for the survey period for May nonfarm payrolls and claims rose 63,000 (20.7%) from the April period. The payroll survey counts persons who were paid during the week which contains the 12th of the month as employed. During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payrolls.
Excluding strikers, claims rose 8,000 (2.6%) from the April survey period for nonfarm payrolls.
The four week moving average of initial claims rose to 333,250 (-0.1% y/y).
Continuing claims for unemployment insurance rose 8,000 following a revised 60,000 decline during the prior week.
The insured rate of unemployment remained at 1.8%.
Job Matching: Evidence from the Beveridge Curve from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-08.pdf"> 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">05/13/06</th>
<th scope="col">05/06/06</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>367</td>
<td>325</td>
<td>11.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,389</td>
<td>-8.7%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
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Initial unemployment insurance claims surged 42,000 last week to 367,000 due to a partial government shutdown in Puerto Rico. The shutdown added 46,000 claims and has been resolved. Consensus expectations had been for 316,000 claims. [...]

Initial Jobless Insurance Claims Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518a.jpg" width="353">
Initial unemployment insurance claims surged 42,000 last week to 367,000 due to a partial government shutdown in Puerto Rico. The shutdown added 46,000 claims and has been resolved. Consensus expectations had been for 316,000 claims.
The Labor Department indicated that excluding claims related to the government shutdown in Puerto Rico seasonally adjusted initial claims would have been closer to 312,000.
The latest figure is for the survey period for May nonfarm payrolls and claims rose 63,000 (20.7%) from the April period. The payroll survey counts persons who were paid during the week which contains the 12th of the month as employed. During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payrolls.
Excluding strikers, claims rose 8,000 (2.6%) from the April survey period for nonfarm payrolls.
The four week moving average of initial claims rose to 333,250 (-0.1% y/y).
Continuing claims for unemployment insurance rose 8,000 following a revised 60,000 decline during the prior week.
The insured rate of unemployment remained at 1.8%.
Job Matching: Evidence from the Beveridge Curve from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-08.pdf"> 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">05/13/06</th>
<th scope="col">05/06/06</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>367</td>
<td>325</td>
<td>11.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,389</td>
<td>-8.7%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
Leading Economic Indicators Dip, March Revised Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518b.jpg" width="353">
For April, the Conference Board&#39;s Composite Index of Leading Economic Indicators dipped 0.1% following a 0.4% March rise, initially reported as a 0.1% decline. Consensus expectations had been for a 0.1% April up tick.
Six month growth in the leaders fell to 2.9% from an upwardly revised 4.8% the prior month. During the last ten years there has been a 43% correlation between the six-month change in the leading indicators and quarterly growth in real GDP.
The breadth of one month gain amongst the 10 components of the leading index halved to 35% in April. Over a six month span 80% of the index components have risen. A large positive contribution from vendor performance was offset by lower building permits, lower consumer sentiment and a lower real money supply.Most of the remaining index components had little m/m impact on the change in the leaders.
The spread between yields on the 10 year Treasury Note and Fed funds made a minimal 0.02 percentage point positive contribution to the leaders. The method of calculating the contribution to the index from the interest rate yield spread has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518c.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.2% for the third consecutive month. All of the four component series rose last month and during the last six months. During the last ten years there has been a 64% correlation between the change in the coincident indicators and real GDP growth.
The lagging indicators increased 0.3% following a revised 0.1% March increase. Last month, 78.6% of the series&#39; components rose while the ratio of coincident to lagging indicators, a measure of actual economic performance versus excess, fell slightly.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Today&#39;s speech titled Basel II: Its Promise and Its Challenges by Federal reserve Board Chairman Ben S. Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060518/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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">6 Month Chg., AR</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">Leading</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>2.9%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>3.5%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>0.1%</td>
<td>1.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
Canada CPI: Up with Energy, But Restrained by Strong Currency 
by <a href="/comment/Stone.html">Carol Stone</a> May 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518d.jpg" width="353">
Yesterday, the report of US CPI for April set off a firestorm in financial markets as participants were hit with a bad case of inflation-itis. Today&#39;s Canadian CPI contained some of the same ingredients, but unlike the US&#39;s, Canada&#39;s &quot;core&quot; rate was actually weaker than expected. The total index was up just under 0.5% for the month, with the yearly rate ahead 2.4%, somewhat more than March&#39;s 2.2%. Dramatically, however, its &quot;core&quot; index was unchanged for the month and actually slowed on the year from 1.7% in March to 1.6%.
Canada&#39;s &quot;core&quot; inflation is defined by the Bank of Canada and is used directly as a monetary policy target. It excludes eight of the most volatile items, such as fresh fruits and vegetables, gasoline and mortgage interest rates. See the footnote beneath the table for the complete list.
Within the total index, energy prices played a major role in the monthly gain: all energy was up 6.9% (not seasonally adjusted), and separate data on actual retail gasoline prices show an increase of 13.7% to C$1.0675/liter, only the fourth month ever that the price has exceeded C$1.00/liter (the other three instances were just last year: August, September and October).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060518e.jpg" width="353">
In discussing the surprising softness of the core measure, some press reports indicated a role for the Canadian dollar. It has strengthened noticeably against the US dollar, not just recently, but basically since the middle of 2002. It also moved up versus the euro from the middle of 2004 through the end of last year. So indeed, the strong currency could be helping Canadian inflation. We look at two components where imports have a significant influence, clothing and recreation. Clothing prices have been falling consistently and in April were 3% below a year earlier. By contrast in the US, the apparel category has declined much less over the last two years. Recreation is another Canadian sector with a trade component, as its residents travel south to Florida and other such destinations and residents of other areas come to Canada. The related prices in Canada are falling slowly, but their pattern changed distinctly soon after the the Canadian dollar turned upward. The chart shows &quot;traveler accommodation&quot; together with the US$ exchange rate; the two series have a remarkable 60% correlation since 1995.
All of Haver&#39;s Canadian monthly data are in CANSIM, an extensive collection of Statistics Canada&#39;s copyrighted series. Exchange rates can be found in USECON, DAILY, INTDAILY and the weekly counterparts of the latter two, as well as in CANSIM.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Canada CPI, % Changes*</th>
<th scope="col">Apr 2006</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Year/ Year</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">All Items</td>
<td>0.46</td>
<td>0.31</td>
<td>-0.23</td>
<td>2.44</td>
<td>2.15</td>
<td>2.12</td>
<td>1.99</td>
</tr>
<tr class="odd">
<td class="firstcol">All Items less 8 Volatiles**</td>
<td>0.00</td>
<td>0.23</td>
<td>0.16</td>
<td>1.58</td>
<td>1.59</td>
<td>1.70</td>
<td>2.15</td>
</tr>
<tr>
<td class="firstcol">Clothing</td>
<td>-0.50</td>
<td>-0.70</td>
<td>-0.69</td>
<td>-3.02</td>
<td>-0.93</td>
<td>-3.10</td>
<td>0.20</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation, etc.</td>
<td>0.00</td>
<td>0.00</td>
<td>-0.16</td>
<td>-0.16</td>
<td>-0.24</td>
<td>0.32</td>
<td>0.40</td>
</tr>
<tr>
<td class="firstcol">Memo: Can$/US$ Month Avg</td>
<td>1.1438</td>
<td>1.1574</td>
<td>1.1489</td>
<td>1.2397 (2/2005)</td>
<td colspan="3">December</td>
</tr>
<tr class="odd">
<td class="firstcol">1.1610</td>
<td>1.2191</td>
<td>1.3128</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060517a.jpg" width="353">
Singapore&#39;s economy turned in a much better than expected performance in Q1, with its GDP up 6.8% annualized from Q4 and 10.6% from a year ago. Forecasts had called for a greater slowdown after the strong close to 2005 in Q4, when GDP was up 12.5% from Q3. The good gain prompted the Singapore government to raise its official forecast for the entire year from 4%-6% projected in February to 5%-7%.
On a year-over-year basis, both goods- and service-producing sectors participated in the good growth. Goods were led by manufacturing, which expanded by 20%. Press reports cited strength in electronic products, a sizable portion of manufacturing in Singapore. Also, among the industry &quot;cluster&quot; data compiled by the Singapore Economic Development Board, biomedical production and transport engineering were also very strong.
Value added in service industries gained 8.1% year-on-year, its best showing since Q2 2004. Wholesale and retail trade was a leader here, reflecting, according to the Department of Statistics, the movement of re-exports, which expanded 39.5% from a year ago in current prices.
Net exports were a leading source of demand, accounting for nearly 80% of the yearly GDP growth. Among domestic sectors, demand for machinery and equipment increased 19% from a year ago.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060517g.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060517h.jpg" width="353">

<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/EMERGEPR/@P4/@P42/@P42.HTM">Singapore</a></th>
<th scope="col">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP Qtr/Qtr</td>
<td>6.8</td>
<td>12.5</td>
<td>9.6</td>
<td>14.6</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Year/Year</td>
<td>10.6</td>
<td>8.6</td>
<td>7.6</td>
<td>5.7</td>
<td>6.4</td>
<td>9.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods Producing (Yr/Yr)</td>
<td>16.3</td>
<td>12.0</td>
<td>10.7</td>
<td>4.9</td>
<td>7.7</td>
<td>8.6</td>
</tr>
<tr>
<td class="firstcol">Service Producing (Yr/Yr)</td>
<td>8.1</td>
<td>7.2</td>
<td>6.8</td>
<td>5.8</td>
<td>6.0</td>
<td>7.1</td>
</tr>
</tbody>
</table>
</body>
</html>

Singapore's economy turned in a much better than expected performance in Q1, with its GDP up 6.8% annualized from Q4 and 10.6% from a year ago. Forecasts had called for a greater slowdown after the strong close to 2005 in Q4, when GDP [...]

Firm Q1 Growth in Singapore Prompts Hike in "Official" 2006 Forecast; Net Exports, Business Equipment Investment Lead

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060517c.jpg" width="353">
Chain store sales were unchanged last week, according to the International Council of Shopping Centers (ICSC)-UBS survey, after a modest 0.4% decline to open the month. So far, sales in May are 0.3% ahead of the April average which rose 1.6% from March.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060517b.jpg" width="353">
Retail gasoline prices rose four cents last week to $2.95 per gallon, however, yesterday spot market gasoline prices dropped again and the NY price is off nearly a dime from last week.
The latest Short-Term Energy Outlook from the US Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html"> 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/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">05/13/06</th>
<th scope="col">05/06/06</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">Total Weekly Chain Store Sales</td>
<td>475.7</td>
<td>475.9</td>
<td>3.1%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Chain store sales were unchanged last week, according to the International Council of Shopping Centers (ICSC)-UBS survey, after a modest 0.4% decline to open the month. So far, sales in May are 0.3% ahead of the April average which [...]

Chain Store Sales Unchanged. Gasoline Prices Jumped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060517f.jpg" width="353">
Last week, the total number of mortgage applications recovered most of the prior week&#39;s decline with a 4.6% gain. The rise lifted the average level in May 0.3% above the April average.
Purchase applications rose 2.4% following a 3.9% w/w decline the prior week. As a result, purchase applications in May are 2.3% 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 recovered about all of the prior week&#39;s decline with an 8.4% rise. Nevertheless, the May level is 2.7% below the April average which fell 4.1% from March.
The effective interest rate on a conventional 30-year mortgage jumped to 6.90% from 6.84% the prior week and the rate on 15-year financing increased to 6.55%. 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">05/12/06</th>
<th scope="col">05/05/06</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>588.0</td>
<td>562.1</td>
<td>-15.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>426.7</td>
<td>416.5</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>1,546.8</td>
<td>1,427.4</td>
<td>-24.1%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

Last week, the total number of mortgage applications recovered most of the prior week's decline with a 4.6% gain. The rise lifted the average level in May 0.3% above the April average. Purchase applications rose 2.4% following a 3.9% [...]

Mortgage Applications Recovered

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.

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**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.

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**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.

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**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.

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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

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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**.


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- 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

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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.


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- 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

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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

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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%. 


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- 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

Jump to:

Philadelphia Fed Business Activity Up

Canada CPI: Up with Energy, But Restrained by Strong Currency

Leading Economic Indicators Dip, March Revised Up

Initial Jobless Insurance Claims Surge

Initial Jobless Insurance Claims Surge

Firm Q1 Growth in Singapore Prompts Hike in "Official" 2006 Forecast; Net Exports, Business Equipment Investment Lead

Chain Store Sales Unchanged. Gasoline Prices Jumped

Mortgage Applications Recovered