Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515e.jpg" width="353">
Stock markets around the world began to falter last week and continued to do so this morning. Both developed and emerging markets are succumbing to rising interest rates, the falling dollar and most recently signs of overshooting in commodity prices.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515f.jpg" width="353">
Morgan Stanley International Capital (MSCI) computes stock market indexes and returns on stock market investments for a wide range of individual countries and various aggregates. Among the latter are a world index, regional indexes, EAFE, (includes the developed markets of western Europe and Japan, Hong Kong, Singapore, Australia and New Zealand) and Emerging Markets, among others. The data are available on a daily, weekly and monthly bases in the Haver databases, MSCID, MSCIW, MSCIM.
The Dow Jones declined 1.76% from Monday, May 8th to Friday May 12th. The (MSCI) EAFE index declined 1.61% in the same period and MSCI&#39;s emerging market index fell 2.79%. The first chart shows the recent down turn in the Dow Jones Index and in MSCI&#39;s EFAE index. The second chart compares the trends in MSCI&#39;s EAFE and Emerging markets indexes.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515g.jpg" width="353">
Haver Analytic&#39;s DAILY and WEEKLY databases of interest rates, commodity prices, and exchange rates provide much of the data needed to monitor the short term data that may affect stock markets. In the third chart we show the trade weighted value of the U. S Dollar and the price of oil as two of the many factors that may affect stock prices. The rise in oil prices generally has a dampening effect on domestic and foreign stock markets. The impact of a decline in the dollar may be mixed. As far as the US market is concerned it could be positive, but foreign markets are likely to view a decline in the dollar as a negative since it will make their exports less competitive.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">May 12&nbsp;</th>
<th scope="col">May 11</th>
<th scope="col">May 10&nbsp;</th>
<th scope="col">May 9 </th>
<th scope="col">May 8</th>
<th scope="col">% Change</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Dow Jones&nbsp;</td>
<td>11380</td>
<td>11501</td>
<td>11643</td>
<td>11640</td>
<td>11584</td>
<td>-1.76</td>
</tr>
<tr>
<td class="firstcol">MSCI&nbsp; EAFE (12/31/69=1000</td>
<td>1938.7</td>
<td>1966.8</td>
<td>1973.1</td>
<td>1966.82</td>
<td>1970.5</td>
<td>-1.61</td>
</tr>
<tr class="odd">
<td class="firstcol">MSCI&nbsp; Emerging Mkts (12/31/87=100)</td>
<td>&nbsp;856.9</td>
<td>873.3</td>
<td>879.9</td>
<td>881.2</td>
<td>881.5</td>
<td>-2.79</td>
</tr>
<tr>
<td class="firstcol">Trade Weighted Dollar (Jan 97=100)</td>
<td>106.73</td>
<td>106.43</td>
<td>106.51</td>
<td>06.85</td>
<td>107.85</td>
<td>-0.23</td>
</tr>
<tr class="odd">
<td class="firstcol">Price of Oil Brent Crude ($ per barrel)</td>
<td>71.49</td>
<td>72.30</td>
<td>69.74</td>
<td>70.66</td>
<td>68.83</td>
<td>3.86</td>
</tr>
</tbody>
</table>
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Stock markets around the world began to falter last week and continued to do so this morning. Both developed and emerging markets are succumbing to rising interest rates, the falling dollar and most recently signs of overshooting in [...]

A Bad Week for Domestic and International Stock Markets

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515h.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) reported that the May Composite Housing Market Index dropped 11.8% from April to the lowest level since June 1995. The figure was quite a bit weaker than Consensus expectations for stability at 50 and was one-third below the level of May 2005.
During the last twenty years there has been an 82% correlation between the y/y change in the annual composite index and the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.
The sub indexes covering current sales of single family homes (-34.2% y/y) and sales in six months (-29.9% y/y) both fell roughly 9% month-to-month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515i.jpg" width="353">
An index of the traffic of prospective home buyers plunged 17.9% m/m, also to more than a ten year low (-39.6% y/y).
Housing markets around the country weakened in May with the index for the Northeast off 6.0% (-32.9% y/y) and in the Midwest it fell 6.3% (-40.0% y/y). Out West the housing market index dropped 11.6% (-27.4% y/y) and in the South it fell 10.5% (-32.0% y/y).
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</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">Composite Housing Market Index</td>
<td>45</td>
<td>51</td>
<td>70</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>
</body>
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The National Association of Home Builders' (NAHB) reported that the May Composite Housing Market Index dropped 11.8% from April to the lowest level since June 1995. The figure was quite a bit weaker than Consensus expectations for [...]

NAHB Housing Market Index Lowest Since 1995

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515d.jpg" width="353">
The Empire State Index of General Business Conditions for May slipped further to 12.36 from an unrevised 15.81 in April. These levels are down sharply from the series&#39; March high of 29.03 and are reported by the Federal Reserve Bank of New York. Consensus expectations had been for stability at 16.2.
Since the series&#39; inception in 2001 there has been a 76% correlation between the index level and the three month change in factory sector industrial production.
Many of the index components improved in May with the exception of employment which fell sharply to its lowest level since February. Orders &amp; shipments both recovered modestly from sharp declines during April.
Pricing pressure recovered to the highest level since February.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515c.jpg" width="353">
The index of expectations for business conditions in six months fell sharply to the lowest level since 2001 as expected pricing pressure rose and expected new orders fell.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</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 Business Conditions (diffusion index)</td>
<td>12.36</td>
<td>15.81</td>
<td>-10.36</td>
<td>15.56</td>
<td>28.79</td>
<td>15.98</td>
</tr>
</tbody>
</table>
</body>
</html>

The Empire State Index of General Business Conditions for May slipped further to 12.36 from an unrevised 15.81 in April. These levels are down sharply from the series' March high of 29.03 and are reported by the Federal Reserve Bank [...]

Empire State Index Easier Again, Expected Conditions Off Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515a.jpg" width="353">
During March, the Leading Index of the Major 7 OECD economies increased another 0.2% after five consecutive months of 0.4% gain. The leaders&#39; six month growth rate held at 3.9%, its best since early 2004.
During the last ten years there has been a 64% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven OECD countries.
Leaders in the European Union (15 countries) rose 0.4% on top of an upwardly revised 0.5% February rise. That improved the index&#39;s six month growth rate to 4.7%, the best since April 2004. During the last ten years there has been a 59% correlation between the change in the leading index and the quarterly change in the European Union GDP volume index.
The 0.7% rise in theGerman leading index continued the trend of strong gain that started just under a year ago. The six month growth rate now is up to 8.4%, the highest level since December 2003, as the business climate indicator continued to surge along with new orders. Inventories fell to a record low versus trend. During the last ten years there has been a 32% correlation between the change in the German leading index and the quarterly change in GDP volume.
A leaders in France ticked up 0.1% and left the series&#39; six month growth rate at a firm 3.9%. The industrial sector&#39;s prospects improved along with the future tendency of production. New car registrations rose but new job prospects &amp; consumer confidence remained depressed.
The Italian leading index fell for the first time since last July. The 0.1% decline eased the series&#39; six month growth rate to a still-improved 1.3%. New orders surged &amp; the future tendency of production rose but consumer confidence remained depressed.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515b.jpg" width="353">
A 0.2% rise in the U.S. leaders was the slimmest gain since last September. Nevertheless, six month growth in the leaders was a firm 4.8% as share prices surged and the business climate indicator improved. The correlation between the leaders&#39; growth rate and real GDP growth has been a high 73% during the last ten years.
The UK leaders jumped 0.6% after two months of small gain and improved the six month growth rate to 1.3%, its best since mid-2004. Share prices and the future tendency of production surged.
The Canadian leaders improved 0.3% following a 0.1% decline in February that was very much downwardly revised. The six month growth rate stood at still-improved 2.4%. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
The leading index in Japan was unchanged in March for the second consecutive month. That dropped the index&#39;s six month growth rate to 1.6%, its lowest since November. Share prices and loans-to-deposits were firm but imports versus exports fell to a twenty year low. The leaders&#39; correlation with Japan&#39;s real economic growth has been a meaningful 40% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/dataoecd/0/58/36674269.pdf">here</a>.
Recent Volatility Trends in the Foreign Exchange Market from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/newsevents/speeches/2006/kos060511.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/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</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">Composite Leading Index&nbsp;</td>
<td>105.28</td>
<td>105.03</td>
<td>2.1%</td>
<td>102.75</td>
<td>102.40</td>
<td>97.87</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>3.9%</td>
<td>3.9%</td>
<td>&nbsp;</td>
<td>0.6%</td>
<td>3.6%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

During March, the Leading Index of the Major 7 OECD economies increased another 0.2% after five consecutive months of 0.4% gain. The leaders' six month growth rate held at 3.9%, its best since early 2004. During the last ten years [...]

Europe Led the OECD Leaders Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515a.jpg" width="353">
During March, the Leading Index of the Major 7 OECD economies increased another 0.2% after five consecutive months of 0.4% gain. The leaders&#39; six month growth rate held at 3.9%, its best since early 2004.
During the last ten years there has been a 64% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven OECD countries.
Leaders in the European Union (15 countries) rose 0.4% on top of an upwardly revised 0.5% February rise. That improved the index&#39;s six month growth rate to 4.7%, the best since April 2004. During the last ten years there has been a 59% correlation between the change in the leading index and the quarterly change in the European Union GDP volume index.
The 0.7% rise in theGerman leading index continued the trend of strong gain that started just under a year ago. The six month growth rate now is up to 8.4%, the highest level since December 2003, as the business climate indicator continued to surge along with new orders. Inventories fell to a record low versus trend. During the last ten years there has been a 32% correlation between the change in the German leading index and the quarterly change in GDP volume.
A leaders in France ticked up 0.1% and left the series&#39; six month growth rate at a firm 3.9%. The industrial sector&#39;s prospects improved along with the future tendency of production. New car registrations rose but new job prospects &amp; consumer confidence remained depressed.
The Italian leading index fell for the first time since last July. The 0.1% decline eased the series&#39; six month growth rate to a still-improved 1.3%. New orders surged &amp; the future tendency of production rose but consumer confidence remained depressed.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515b.jpg" width="353">
A 0.2% rise in the U.S. leaders was the slimmest gain since last September. Nevertheless, six month growth in the leaders was a firm 4.8% as share prices surged and the business climate indicator improved. The correlation between the leaders&#39; growth rate and real GDP growth has been a high 73% during the last ten years.
The UK leaders jumped 0.6% after two months of small gain and improved the six month growth rate to 1.3%, its best since mid-2004. Share prices and the future tendency of production surged.
The Canadian leaders improved 0.3% following a 0.1% decline in February that was very much downwardly revised. The six month growth rate stood at still-improved 2.4%. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
The leading index in Japan was unchanged in March for the second consecutive month. That dropped the index&#39;s six month growth rate to 1.6%, its lowest since November. Share prices and loans-to-deposits were firm but imports versus exports fell to a twenty year low. The leaders&#39; correlation with Japan&#39;s real economic growth has been a meaningful 40% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/dataoecd/0/58/36674269.pdf">here</a>.
Recent Volatility Trends in the Foreign Exchange Market from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/newsevents/speeches/2006/kos060511.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/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</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">Composite Leading Index&nbsp;</td>
<td>105.28</td>
<td>105.03</td>
<td>2.1%</td>
<td>102.75</td>
<td>102.40</td>
<td>97.87</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>3.9%</td>
<td>3.9%</td>
<td>&nbsp;</td>
<td>0.6%</td>
<td>3.6%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
Empire State Index Easier Again, Expected Conditions Off Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 15, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515d.jpg" width="353">
The Empire State Index of General Business Conditions for May slipped further to 12.36 from an unrevised 15.81 in April. These levels are down sharply from the series&#39; March high of 29.03 and are reported by the Federal Reserve Bank of New York. Consensus expectations had been for stability at 16.2.
Since the series&#39; inception in 2001 there has been a 76% correlation between the index level and the three month change in factory sector industrial production.
Many of the index components improved in May with the exception of employment which fell sharply to its lowest level since February. Orders &amp; shipments both recovered modestly from sharp declines during April.
Pricing pressure recovered to the highest level since February.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515c.jpg" width="353">
The index of expectations for business conditions in six months fell sharply to the lowest level since 2001 as expected pricing pressure rose and expected new orders fell.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</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 Business Conditions (diffusion index)</td>
<td>12.36</td>
<td>15.81</td>
<td>-10.36</td>
<td>15.56</td>
<td>28.79</td>
<td>15.98</td>
</tr>
</tbody>
</table>
NAHB Housing Market Index Lowest Since 1995 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 15, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515h.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) reported that the May Composite Housing Market Index dropped 11.8% from April to the lowest level since June 1995. The figure was quite a bit weaker than Consensus expectations for stability at 50 and was one-third below the level of May 2005.
During the last twenty years there has been an 82% correlation between the y/y change in the annual composite index and the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.
The sub indexes covering current sales of single family homes (-34.2% y/y) and sales in six months (-29.9% y/y) both fell roughly 9% month-to-month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515i.jpg" width="353">
An index of the traffic of prospective home buyers plunged 17.9% m/m, also to more than a ten year low (-39.6% y/y).
Housing markets around the country weakened in May with the index for the Northeast off 6.0% (-32.9% y/y) and in the Midwest it fell 6.3% (-40.0% y/y). Out West the housing market index dropped 11.6% (-27.4% y/y) and in the South it fell 10.5% (-32.0% y/y).
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</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/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</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">Composite Housing Market Index</td>
<td>45</td>
<td>51</td>
<td>70</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>
A Bad Week for Domestic and International Stock Markets  
by <a href="/comment/Curley.html">Louise Curley</a> May 15, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515e.jpg" width="353">
Stock markets around the world began to falter last week and continued to do so this morning. Both developed and emerging markets are succumbing to rising interest rates, the falling dollar and most recently signs of overshooting in commodity prices.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515f.jpg" width="353">
Morgan Stanley International Capital (MSCI) computes stock market indexes and returns on stock market investments for a wide range of individual countries and various aggregates. Among the latter are a world index, regional indexes, EAFE, (includes the developed markets of western Europe and Japan, Hong Kong, Singapore, Australia and New Zealand) and Emerging Markets, among others. The data are available on a daily, weekly and monthly bases in the Haver databases, MSCID, MSCIW, MSCIM.
The Dow Jones declined 1.76% from Monday, May 8th to Friday May 12th. The (MSCI) EAFE index declined 1.61% in the same period and MSCI&#39;s emerging market index fell 2.79%. The first chart shows the recent down turn in the Dow Jones Index and in MSCI&#39;s EFAE index. The second chart compares the trends in MSCI&#39;s EAFE and Emerging markets indexes.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060515g.jpg" width="353">
Haver Analytic&#39;s DAILY and WEEKLY databases of interest rates, commodity prices, and exchange rates provide much of the data needed to monitor the short term data that may affect stock markets. In the third chart we show the trade weighted value of the U. S Dollar and the price of oil as two of the many factors that may affect stock prices. The rise in oil prices generally has a dampening effect on domestic and foreign stock markets. The impact of a decline in the dollar may be mixed. As far as the US market is concerned it could be positive, but foreign markets are likely to view a decline in the dollar as a negative since it will make their exports less competitive.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">May 12&nbsp;</th>
<th scope="col">May 11</th>
<th scope="col">May 10&nbsp;</th>
<th scope="col">May 9 </th>
<th scope="col">May 8</th>
<th scope="col">% Change</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Dow Jones&nbsp;</td>
<td>11380</td>
<td>11501</td>
<td>11643</td>
<td>11640</td>
<td>11584</td>
<td>-1.76</td>
</tr>
<tr>
<td class="firstcol">MSCI&nbsp; EAFE (12/31/69=1000</td>
<td>1938.7</td>
<td>1966.8</td>
<td>1973.1</td>
<td>1966.82</td>
<td>1970.5</td>
<td>-1.61</td>
</tr>
<tr class="odd">
<td class="firstcol">MSCI&nbsp; Emerging Mkts (12/31/87=100)</td>
<td>&nbsp;856.9</td>
<td>873.3</td>
<td>879.9</td>
<td>881.2</td>
<td>881.5</td>
<td>-2.79</td>
</tr>
<tr>
<td class="firstcol">Trade Weighted Dollar (Jan 97=100)</td>
<td>106.73</td>
<td>106.43</td>
<td>106.51</td>
<td>06.85</td>
<td>107.85</td>
<td>-0.23</td>
</tr>
<tr class="odd">
<td class="firstcol">Price of Oil Brent Crude ($ per barrel)</td>
<td>71.49</td>
<td>72.30</td>
<td>69.74</td>
<td>70.66</td>
<td>68.83</td>
<td>3.86</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/060512h.jpg" width="353">
After some contraction in 2004, home finance in Australia has strengthened considerably. In data reported at midday May 12 in Canberra, the Australian Bureau of Statistics (ABS) indicated that housing commitments totaled 59,724 in March, up 423 from February and 7.5% from March 2005. The value of these commitments was A$13,124.4 million, up 11% from the year-earlier month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060512i.jpg" width="353">
In the table below, we show the finance commitment data by purpose. We have combined it a bit differently than ABS presents. We added construction commitments to those for the purchase of new homes; this &quot;new home financing&quot; was nearly flat in March, up just 0.2%, but these commitments are up 10.5% from a year ago. ABS&#39;s measure of existing home purchase commitments includes those for refinancing, but we have pulled them out, so the entry in our table includes only actual purchases of &quot;established dwellings&quot;. These financing commitments were up 0.9% for the month and 7.3% for the year.
The number of commitments for refinancing was 17,509 in March, 0.5% larger than in February and, moderating a bit, just 6.7% above March 2005. The volume of refinancing activity hit a peak during 2003, just a few months after a trough in interest rates, shown in the graph using 10-year Treasury bonds. Looking at this interest rate with a 6-month lead, we see a substantial 76% negative correlation with refinancing activity since 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060512j.jpg" width="353">
The number of existing home purchase commitments also peaked during 2003, and are only now re-approaching that amount.
These data are contained in Haver&#39;s ANZ database. All of the various calculations discussed above are made using DLXVG3. We can add or subtract two series and take growth rates on the newly constructed series, just as with the original ones. We can also edit the title to match the calculation, using the Graph dropdown menu item &quot;Titles&quot;. Lead and lags in a series are implemented using CTRL together with the left- or right-arrow key.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Australia: Housing Finance Commitments, SA</th>
<th scope="col">Mar 2006</th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Mar 2005</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Total Units (000s)</td>
<td>59.72</td>
<td>59.30</td>
<td>58.46</td>
<td>55.57</td>
<td>56.11</td>
<td>51.18</td>
<td>56.66</td>
</tr>
<tr class="odd">
<td class="firstcol">Value (Bil.A$)</td>
<td>$13.124</td>
<td>$13.040</td>
<td>$12.731</td>
<td>$11.829</td>
<td>$12.046</td>
<td>$10.400</td>
<td>$10.336</td>
</tr>
<tr>
<td class="firstcol">Construction + Purchase of Newly Built Houses (000s)</td>
<td>7.27</td>
<td>7.25</td>
<td>6.99</td>
<td>6.58</td>
<td>6.68</td>
<td>6.33</td>
<td>6.63</td>
</tr>
<tr class="odd">
<td class="firstcol">Purchase of Established Houses (000s)*</td>
<td>34.95</td>
<td>34.63</td>
<td>34.22</td>
<td>32.58</td>
<td>32.56</td>
<td>29.21</td>
<td>33.55</td>
</tr>
<tr>
<td class="firstcol">Refinance of Established Houses (000s)</td>
<td>17.51</td>
<td>17.42</td>
<td>17.26</td>
<td>16.41</td>
<td>16.86</td>
<td>15.64</td>
<td>16.48</td>
</tr>
</tbody>
</table>
</body>
</html>

After some contraction in 2004, home finance in Australia has strengthened considerably. In data reported at midday May 12 in Canberra, the Australian Bureau of Statistics (ABS) indicated that housing commitments totaled 59,724 in [...]

Australia Home Financing Commitments Recoup 2004 Reductions

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060512f.jpg" width="353">
Consumer sentiment fell hard early this month. The preliminary May reading from the University of Michigan dropped 9.6% m/m to 79.0, the lowest level since last October. Consensus expectations had been for a far lesser decline to 86.8. During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
Expectations for the economy dropped 7.4% on top of a 3.3% April decline. Higher gasoline prices probably were behind the jump in the twelve month mean expected inflation rate to 4.8% from 4.4% last month, its highest level since October. That dragged down expectations for personal finances as well as expected business conditions.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060512g.jpg" width="353">
The current conditions index also suffered and fell 11.9% m/m. The current index of personal finances dropped 16.0% (-8.3% y/y) and the reading of buying conditions for large household goods fell 9.7% (-8.6% y/y). Consumers&#39; assessment of gov&#39;t economic policy cratered 8.3% m/m (-10.5% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Household energy expenditures, 1982-2005 from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cfljune2006_227.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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">May (prelim.</th>
<th scope="col">April</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">Consumer Sentiment</td>
<td>79.0</td>
<td>87.4</td>
<td>-9.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>96.2</td>
<td>109.2</td>
<td>-8.3%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>68.0</td>
<td>73.4</td>
<td>-9.7%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
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Consumer sentiment fell hard early this month. The preliminary May reading from the University of Michigan dropped 9.6% m/m to 79.0, the lowest level since last October. Consensus expectations had been for a far lesser decline to [...]

U.S. Consumer Sentiment Fell: Inflation Expectations Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060512e.jpg" width="353">
Total import prices jumped 2.1% last month following declines during the prior two months. The gain was nearly double consensus expectations for a 1.1% increase.
Petroleum prices were notably strong and rose 11.5% (32.5% y/y). Nonpetroleum import prices also firmed and were unchanged after two consecutive months of decline.
Industrial materials prices less petroleum rose 0.5% (6.1% y/y) after two months of sharp decline. Prices for nonauto consumer goods fell 0.2% (-0.3% y/y) and capital goods prices were unchanged for the third consecutive month (-1.5% y/y). Excluding a 0.4% decline in computer prices, capital goods prices rose 0.1% for the second month (0.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060512d.jpg" width="353">
During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies and a lower 57% against the real value of the dollar.
Export prices rose 0.6%, the strongest increase since January.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</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">Import - All Commodities</td>
<td>2.1%</td>
<td>-0.2%</td>
<td>5.9%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>11.5%</td>
<td>0.5%</td>
<td>32.5%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export - All Commodities</td>
<td>0.6%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Total import prices jumped 2.1% last month following declines during the prior two months. The gain was nearly double consensus expectations for a 1.1% increase. Petroleum prices were notably strong and rose 11.5% (32.5% y/y). [...]

Import Prices Jumped

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**.


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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

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A Bad Week for Domestic and International Stock Markets

NAHB Housing Market Index Lowest Since 1995

Empire State Index Easier Again, Expected Conditions Off Sharply

Europe Led the OECD Leaders Up

Europe Led the OECD Leaders Up

Australia Home Financing Commitments Recoup 2004 Reductions

U.S. Consumer Sentiment Fell: Inflation Expectations Surged

Import Prices Jumped