Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510e.jpg" width="353">
The U.S. federal government ran a budget surplus in April of $118.9B that was more than double the surplus during the same month last year. The surplus improved the FY06 to-date budget deficit to $184.1B versus a deficit of $236.9B during the first seven months of FY05.
A quirky 21.5% m/m drop in U.S. net outlays helped minimize the government&#39;s red ink. As a result of the drop the y/y growth in FYTD outlays fell to 5.7% from 8.7% one month earlier. Lower spending during April was logged by most outlay categories. Defense spending (19% of total outlays) reversed all of the prior month&#39;s surge and fell 21.6% (-10.9% y/y) and for the first seven months of FY06 rose 5.7% from &#39;05.
Medicare spending (12% of total outlays) also reversed the March jump and fell by about half m/m. Still the FYTD growth in Medicare spending was strong at 7.9%, helped by the initiation of prescription drug coverage. Spending on social security (21% of total outlays) remained strong at 5.7%.
Net revenues nearly doubled m/m during April and that lifted growth to 11.2% during the first seven months of this fiscal year versus FY05. Individual income tax receipts (44% of total receipts) rose 13.8% from last April and that pulled FYTD growth to 9.9%. Corporate income taxes (10% of total receipts) similarly were strong and rose 28.0% y/y and rose 29.9% during fiscal year 06&#39;s first seven months.
The improved job market raised employment taxes (36% of total receipts) 7.4% y/y and estate &amp; gift taxes surged by 13.1% y/y.
Presidential Approval Ratings: How Low Can Bush Go? from the American Enterprise Institute (AEI) can be found <a href="http://www.aei.org/publications/pubID.24359,filter.all/pub_detail.asp">here</a>.
Also from AEI is Taking Stock of Congress: A Lot of Bad to Go Around and it is available <a href="http://www.aei.org/publications/filter.all,pubID.24357/pub_detail.asp">here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$118.9B</td>
<td>$-85.5B</td>
<td>$57.7B (4/05)</td>
<td>$-318.3B</td>
<td>$-412.7B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$315.1B</td>
<td>$164.6B</td>
<td>13.5%</td>
<td>14.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$196.2B</td>
<td>$250.0B</td>
<td>-10.8%</td>
<td>7.8%</td>
<td>6.2%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
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The U.S. federal government ran a budget surplus in April of $118.9B that was more than double the surplus during the same month last year. The surplus improved the FY06 to-date budget deficit to $184.1B versus a deficit of $236.9B [...]

U.S. Budget Surplus Doubled in April

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510c.jpg" width="353">
The Federal Open Market Committee raised the target interest rate for Federal funds 25 basis points to 5.00% at today&#39;s meeting. This sixteenth 25 basis point increase since June of 2004 was the result of a unanimous decision and was widely expected by analysts.
The discount rate also was raised 25 basis points to 6.00%.
The Fed&#39;s rationale for raising the rate was succinct. &quot;Economic growth has been quite strong so far this year.&quot;
Future rate increases were perhaps suggested by the statement &quot;... further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510d.jpg" width="353">
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/BoardDocs/press/monetary/2006/20060510/default.htm.">link</a>.
Is Price Stability Enough? by William R. White at the Bank for International Settlements can be found <a href="http://www.bis.org/publ/work205.htm">here</a>.
Transparency, Expectations and Forecasts from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/filelegacydocs/erq106_bauer.pdf">here</a>.
Enhancing Fed Credibility from the Federal Reserve Bank of San Francisco is found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-05.pdf">here</a>.

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The Federal Open Market Committee raised the target interest rate for Federal funds 25 basis points to 5.00% at today's meeting. This sixteenth 25 basis point increase since June of 2004 was the result of a unanimous decision and was [...]

Fed Funds Rate Increased to 5.00%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510a.jpg" width="353">
The total number of mortgage applications fell another 5.8% last week. It was the fourth decline during the last five weeks and pulled the opening level in May 2.0% below April which fell 1.1% from the March average.
Purchase applications gave back 3.9% w/w of an 11.3% recovery at the end of April. Nevertheless, at the start of May purchase applications were 1.1% 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.
An 8.8% w/w decline in applications to refinance lowered the level in early May 6.6% below the April average which fell 4.1% from March.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose again to 6.84% from 6.81% at the end of April. The rate on 15-year financing similarly increased to 6.51%, the highest level since early 2002. 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%">
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<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">05/05/06</th>
<th scope="col">04/28/06</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>562.1</td>
<td>596.8</td>
<td>-28.0%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>416.5</td>
<td>433.3</td>
<td>-20.8%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,427.4</td>
<td>1,565.6</td>
<td>-36.9%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
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The total number of mortgage applications fell another 5.8% last week. It was the fourth decline during the last five weeks and pulled the opening level in May 2.0% below April which fell 1.1% from the March average. Purchase [...]

Mortgage Applications Crimped By Higher Rates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510c.jpg" width="353">
The Federal Open Market Committee raised the target interest rate for Federal funds 25 basis points to 5.00% at today&#39;s meeting. This sixteenth 25 basis point increase since June of 2004 was the result of a unanimous decision and was widely expected by analysts.
The discount rate also was raised 25 basis points to 6.00%.
The Fed&#39;s rationale for raising the rate was succinct. &quot;Economic growth has been quite strong so far this year.&quot;
Future rate increases were perhaps suggested by the statement &quot;... further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510d.jpg" width="353">
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/BoardDocs/press/monetary/2006/20060510/default.htm.">link</a>.
Is Price Stability Enough? by William R. White at the Bank for International Settlements can be found <a href="http://www.bis.org/publ/work205.htm">here</a>.
Transparency, Expectations and Forecasts from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/filelegacydocs/erq106_bauer.pdf">here</a>.
Enhancing Fed Credibility from the Federal Reserve Bank of San Francisco is found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-05.pdf">here</a>.

U.S. Budget Surplus Doubled in April 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510e.jpg" width="353">
The U.S. federal government ran a budget surplus in April of $118.9B that was more than double the surplus during the same month last year. The surplus improved the FY06 to-date budget deficit to $184.1B versus a deficit of $236.9B during the first seven months of FY05.
A quirky 21.5% m/m drop in U.S. net outlays helped minimize the government&#39;s red ink. As a result of the drop the y/y growth in FYTD outlays fell to 5.7% from 8.7% one month earlier. Lower spending during April was logged by most outlay categories. Defense spending (19% of total outlays) reversed all of the prior month&#39;s surge and fell 21.6% (-10.9% y/y) and for the first seven months of FY06 rose 5.7% from &#39;05.
Medicare spending (12% of total outlays) also reversed the March jump and fell by about half m/m. Still the FYTD growth in Medicare spending was strong at 7.9%, helped by the initiation of prescription drug coverage. Spending on social security (21% of total outlays) remained strong at 5.7%.
Net revenues nearly doubled m/m during April and that lifted growth to 11.2% during the first seven months of this fiscal year versus FY05. Individual income tax receipts (44% of total receipts) rose 13.8% from last April and that pulled FYTD growth to 9.9%. Corporate income taxes (10% of total receipts) similarly were strong and rose 28.0% y/y and rose 29.9% during fiscal year 06&#39;s first seven months.
The improved job market raised employment taxes (36% of total receipts) 7.4% y/y and estate &amp; gift taxes surged by 13.1% y/y.
Presidential Approval Ratings: How Low Can Bush Go? from the American Enterprise Institute (AEI) can be found <a href="http://www.aei.org/publications/pubID.24359,filter.all/pub_detail.asp">here</a>.
Also from AEI is Taking Stock of Congress: A Lot of Bad to Go Around and it is available <a href="http://www.aei.org/publications/filter.all,pubID.24357/pub_detail.asp">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/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$118.9B</td>
<td>$-85.5B</td>
<td>$57.7B (4/05)</td>
<td>$-318.3B</td>
<td>$-412.7B</td>
<td>$-377.6B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Net Revenues</td>
<td>$315.1B</td>
<td>$164.6B</td>
<td>13.5%</td>
<td>14.5%</td>
<td>5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Net Outlays</td>
<td>$196.2B</td>
<td>$250.0B</td>
<td>-10.8%</td>
<td>7.8%</td>
<td>6.2%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
Mortgage Applications Crimped By Higher Rates 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510a.jpg" width="353">
The total number of mortgage applications fell another 5.8% last week. It was the fourth decline during the last five weeks and pulled the opening level in May 2.0% below April which fell 1.1% from the March average.
Purchase applications gave back 3.9% w/w of an 11.3% recovery at the end of April. Nevertheless, at the start of May purchase applications were 1.1% 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.
An 8.8% w/w decline in applications to refinance lowered the level in early May 6.6% below the April average which fell 4.1% from March.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose again to 6.84% from 6.81% at the end of April. The rate on 15-year financing similarly increased to 6.51%, the highest level since early 2002. 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">05/05/06</th>
<th scope="col">04/28/06</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>562.1</td>
<td>596.8</td>
<td>-28.0%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>416.5</td>
<td>433.3</td>
<td>-20.8%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,427.4</td>
<td>1,565.6</td>
<td>-36.9%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
UK Trade Flows Show Strengthening Trend; Deficit Narrows in March 
by <a href="/comment/Stone.html">Carol Stone</a> May 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510f.jpg" width="353">
UK trade flows are strong. In both directions. A quick glance at today&#39;s March report would likely draw the most attention to a widening tendency in monthly deficit. The March figure, &pound;3.84 billion, came down from February&#39;s &pound;5.38 billion, but the general run has been toward larger gaps. See the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510g.jpg" width="353">
Nonetheless, the growth of exports as well as imports has been impressive. Exports are up13.7% from a year ago, with goods alone up 19.8%. Imports have risen 15.0%, with the goods portion up 18.9%. While some of this is a pick-up in prices, the volume indexes have also shown vigor: exports of goods are up 16.0% and imports, 13.3%.
Oil exports and imports are obviously up in value terms, and the trend may be shifting in the volume of oil exports. These are still below year ago amounts, but the one-month increase for March over February was a whopping 61.3%. Imports are quite erratic month-to-month, but for the first quarter as a whole, the amount of crude oil imported was 4.2% larger than in last year&#39;s first quarter. As seen in the table below, the overall &quot;fuel&quot; account recovered a bit in March from its recent unprecedented deficits. The recent high oil prices may be making it more economical for UK producers to raise the volume they pump, and indeed, the volume index for fuel, at 94 (2002=100) is the highest since last March, when it was 101.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060510h.jpg" width="353">
Non-oil trade has generally been on an upswing as well, and many countries are increasing their purchases from the UK. The ONS cautions that some of the apparent gains may be due to the results of VAT fraud investigations, but even so, their carefully worded text suggests that much of the gains are genuine. The ONS release is available <a href="http://www.statistics.gov.uk/pdfdir/trd0506.pdf">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK Trade, SA, Bil.&pound;</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">Trade Balance: Goods &amp; Services</td>
<td>-3.84</td>
<td>-5.38</td>
<td>-4.45</td>
<td>-3.04</td>
<td>-3.91</td>
<td>-3.25</td>
<td>-2.58</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>29.29</td>
<td>28.81</td>
<td>28.68</td>
<td>25.76</td>
<td>26.33</td>
<td>24.49</td>
<td>23.52</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>33.12</td>
<td>34.20</td>
<td>33.13</td>
<td>28.80</td>
<td>30.23</td>
<td>27.74</td>
<td>26.10</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>-5.46</td>
<td>-7.05</td>
<td>-6.14</td>
<td>-4.72</td>
<td>-5.47</td>
<td>-5.04</td>
<td>-3.99</td>
</tr>
<tr>
<td class="firstcol">Fuels</td>
<td>-0.28</td>
<td>-0.71</td>
<td>-0.81</td>
<td>0.35</td>
<td>-0.23</td>
<td>0.09</td>
<td>0.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Exports</td>
<td>2.34</td>
<td>1.86</td>
<td>2.01</td>
<td>1.90</td>
<td>1.80</td>
<td>1.49</td>
<td>1.38</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>2.62</td>
<td>2.57</td>
<td>2.82</td>
<td>1.55</td>
<td>2.03</td>
<td>1.40</td>
<td>0.96</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>1.62</td>
<td>1.66</td>
<td>1.96</td>
<td>1.68</td>
<td>1.56</td>
<td>1.79</td>
<td>1.41</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509e.jpg" width="353">
March industrial production in Germany fell 2.4% in contrast to expectations of a small rise. The decline was the biggest monthly fall since June, 2000. Excluding construction, which declined by 14.5%, production still declined by 1.7%. Manufacturing output declined 1.3% with declines in capital goods production of 2.5%, in consumer goods, 1.0%, in energy, 5.3% and in intermediate goods, 0.5%. Production in Manufacturing and Construction are compared in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509f.jpg" width="353">
The set back in production is not necessarily a sign that the moderate upturn in the German economy is in danger. The month of March was unseasonally very cold, a fact that could account for some of the sharp drop in construction activity. In addition there was a brief work stoppage in late March when 700,000 workers in North Rhine-Westphalia were called off the job in connection with the 2006 wage negotiations of IG Metall (Germany&#39;s union of some 3.4 million engineering workers). The union&#39;s initial demand was for a 5% wage increase, but the workers in North Rhine-Westphalia subsequently settled for a 3% wage increase. Expectations are that this settlement will be accepted by the six remaining regional chapters of the union and become a model for a nationwide agreement.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509g.jpg" width="353">
Industrial production in Eastern Europe continues to show strength--Slovakia, in particular, with an 11% rise in production from February to March. Production in Hungary was up a more modest 1.5% in the same period. Industrial production in the two countries is shown in the second chart. The year-over-year gains were 16.6% in Slovakia and 10.1% in Hungary. (These data are found in the Haver data base EMERGECW.) The data for Hungary are preliminary and are based on the output of firms with five or more employees.
As an example of the different trends in industrial production in Western and Eastern Europe, production in Germany and Hungary are shown in the third chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J5.HTM">Industrial Production</a> (2000=100)</th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total</td>
<td>105.0</td>
<td>107.6</td>
<td>101.1</td>
<td>-2.42</td>
<td>3.86</td>
<td>103.8</td>
<td>100.8</td>
<td>98.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total ex &nbsp;Construction</td>
<td>108.4</td>
<td>110.3</td>
<td>104.1</td>
<td>-1.72</td>
<td>4.13</td>
<td>106.1</td>
<td>102.5</td>
<td>99.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Construction</td>
<td>64.3</td>
<td>75.2</td>
<td>65.5</td>
<td>-14.49</td>
<td>-1.83</td>
<td>76.1</td>
<td>80.4</td>
<td>85.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Manufacturing&nbsp;</td>
<td>109.2</td>
<td>110.2</td>
<td>104.3</td>
<td>-1.27</td>
<td>4.70</td>
<td>106.6</td>
<td>102.7</td>
<td>99.4</td>
</tr>
<tr>
<td class="firstcol">Hungary</td>
<td>&nbsp;139.36</td>
<td>137.3&nbsp;</td>
<td>126.6&nbsp;</td>
<td>1.50&nbsp;</td>
<td>10.08&nbsp;</td>
<td>131.5&nbsp;</td>
<td>122.11&nbsp;</td>
<td>114.42&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia</td>
<td>146.5</td>
<td>132.0</td>
<td>125.6</td>
<td>10.98</td>
<td>16.64</td>
<td>129.1</td>
<td>124.6</td>
<td>119.6</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
</body>
</html>

March industrial production in Germany fell 2.4% in contrast to expectations of a small rise. The decline was the biggest monthly fall since June, 2000. Excluding construction, which declined by 14.5%, production still declined by [...]

European Industrial Production: Germany, an Unexpected Sharp Decline; Hungary and Slovakia, Show Continued Strength

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509d.jpg" width="353">
Chain store sales slipped 0.4% last week, according to the International Council of Shopping Centers (ICSC)-UBS survey. The decline, however, followed several heady gains during April. Therefore, the opening level of May sales was 0.3% above 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 chain store sales leading indicator was unchanged (-1.0% y/y) during the last week of April. The month&#39;s average fell 0.8% from March which rose 0.3% versus February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509a.jpg" width="353">
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.
Retail gasoline prices slipped one penny last week to $2.91 per gallon, reversing the modest rise during the prior week. Yesterday, the recent decline in spot market gasoline prices continued and for unleaded regular, the NY price was off 13 cents from last week&#39;s average.
Bringing Down Gas and Oil Prices from the American Enterprise Institute is available <a href="http://www.aei.org/publications/pubID.24336,filter.all/pub_detail.asp"> 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">05/06/06</th>
<th scope="col">04/29/06</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>475.9</td>
<td>477.7</td>
<td>3.1%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales slipped 0.4% last week, according to the International Council of Shopping Centers (ICSC)-UBS survey. The decline, however, followed several heady gains during April. Therefore, the opening level of May sales was [...]

Chain Store Sales Fell With Gasoline Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509b.jpg" width="353">
Small business optimism in April recovered most of the prior month&#39;s decline with a 2.1% rise, according to the National Federation of Independent Business (NFIB).
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
Respondents expecting higher real sales in six months recovered about half of a precipitous March decline though expectations that the economy would improve remained negative for the second month. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509c.jpg" width="353">
The percentage of firms with one or more job openings improved sharply to the highest level since early 2001. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.
The percent planning to raise capital expenditures recovered half of the sharp March decline..The percentage of firms planning to raise average selling prices rose to the highest level since January and the percentage of firms actually raising prices rose as well. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<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/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</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>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>100.1</td>
<td>98.0</td>
<td>0.3%</td>
<td>101.6</td>
<td>104.6</td>
<td>101.3</td>
</tr>
</tbody>
</table>
</body>
</html>

Small business optimism in April recovered most of the prior month's decline with a 2.1% rise, according to the National Federation of Independent Business (NFIB). During the last ten years there has been a 70% correlation between the [...]

Small Business Optimism Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509b.jpg" width="353">
Small business optimism in April recovered most of the prior month&#39;s decline with a 2.1% rise, according to the National Federation of Independent Business (NFIB).
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
Respondents expecting higher real sales in six months recovered about half of a precipitous March decline though expectations that the economy would improve remained negative for the second month. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509c.jpg" width="353">
The percentage of firms with one or more job openings improved sharply to the highest level since early 2001. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.
The percent planning to raise capital expenditures recovered half of the sharp March decline..The percentage of firms planning to raise average selling prices rose to the highest level since January and the percentage of firms actually raising prices rose as well. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<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/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</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>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>100.1</td>
<td>98.0</td>
<td>0.3%</td>
<td>101.6</td>
<td>104.6</td>
<td>101.3</td>
</tr>
</tbody>
</table>
Chain Store Sales Fell With Gasoline Prices 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509d.jpg" width="353">
Chain store sales slipped 0.4% last week, according to the International Council of Shopping Centers (ICSC)-UBS survey. The decline, however, followed several heady gains during April. Therefore, the opening level of May sales was 0.3% above 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 chain store sales leading indicator was unchanged (-1.0% y/y) during the last week of April. The month&#39;s average fell 0.8% from March which rose 0.3% versus February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509a.jpg" width="353">
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.
Retail gasoline prices slipped one penny last week to $2.91 per gallon, reversing the modest rise during the prior week. Yesterday, the recent decline in spot market gasoline prices continued and for unleaded regular, the NY price was off 13 cents from last week&#39;s average.
Bringing Down Gas and Oil Prices from the American Enterprise Institute is available <a href="http://www.aei.org/publications/pubID.24336,filter.all/pub_detail.asp"> 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">05/06/06</th>
<th scope="col">04/29/06</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>475.9</td>
<td>477.7</td>
<td>3.1%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
European Industrial Production:  Germany, an Unexpected Sharp Decline; Hungary and Slovakia, Show Continued Strength 
by <a href="/comment/Curley.html">Louise Curley</a> May 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509e.jpg" width="353">
March industrial production in Germany fell 2.4% in contrast to expectations of a small rise. The decline was the biggest monthly fall since June, 2000. Excluding construction, which declined by 14.5%, production still declined by 1.7%. Manufacturing output declined 1.3% with declines in capital goods production of 2.5%, in consumer goods, 1.0%, in energy, 5.3% and in intermediate goods, 0.5%. Production in Manufacturing and Construction are compared in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509f.jpg" width="353">
The set back in production is not necessarily a sign that the moderate upturn in the German economy is in danger. The month of March was unseasonally very cold, a fact that could account for some of the sharp drop in construction activity. In addition there was a brief work stoppage in late March when 700,000 workers in North Rhine-Westphalia were called off the job in connection with the 2006 wage negotiations of IG Metall (Germany&#39;s union of some 3.4 million engineering workers). The union&#39;s initial demand was for a 5% wage increase, but the workers in North Rhine-Westphalia subsequently settled for a 3% wage increase. Expectations are that this settlement will be accepted by the six remaining regional chapters of the union and become a model for a nationwide agreement. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060509g.jpg" width="353">
Industrial production in Eastern Europe continues to show strength--Slovakia, in particular, with an 11% rise in production from February to March. Production in Hungary was up a more modest 1.5% in the same period. Industrial production in the two countries is shown in the second chart. The year-over-year gains were 16.6% in Slovakia and 10.1% in Hungary. (These data are found in the Haver data base EMERGECW.) The data for Hungary are preliminary and are based on the output of firms with five or more employees.
As an example of the different trends in industrial production in Western and Eastern Europe, production in Germany and Hungary are shown in the third chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J5.HTM">Industrial Production</a> (2000=100)</th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total</td>
<td>105.0</td>
<td>107.6</td>
<td>101.1</td>
<td>-2.42</td>
<td>3.86</td>
<td>103.8</td>
<td>100.8</td>
<td>98.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total ex &nbsp;Construction</td>
<td>108.4</td>
<td>110.3</td>
<td>104.1</td>
<td>-1.72</td>
<td>4.13</td>
<td>106.1</td>
<td>102.5</td>
<td>99.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Construction</td>
<td>64.3</td>
<td>75.2</td>
<td>65.5</td>
<td>-14.49</td>
<td>-1.83</td>
<td>76.1</td>
<td>80.4</td>
<td>85.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Manufacturing&nbsp;</td>
<td>109.2</td>
<td>110.2</td>
<td>104.3</td>
<td>-1.27</td>
<td>4.70</td>
<td>106.6</td>
<td>102.7</td>
<td>99.4</td>
</tr>
<tr>
<td class="firstcol">Hungary</td>
<td>&nbsp;139.36</td>
<td>137.3&nbsp;</td>
<td>126.6&nbsp;</td>
<td>1.50&nbsp;</td>
<td>10.08&nbsp;</td>
<td>131.5&nbsp;</td>
<td>122.11&nbsp;</td>
<td>114.42&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia</td>
<td>146.5</td>
<td>132.0</td>
<td>125.6</td>
<td>10.98</td>
<td>16.64</td>
<td>129.1</td>
<td>124.6</td>
<td>119.6</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>


</html>

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. 

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**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

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U.S. Budget Surplus Doubled in April

Fed Funds Rate Increased to 5.00%

Mortgage Applications Crimped By Higher Rates

Fed Funds Rate Increased to 5.00%

European Industrial Production: Germany, an Unexpected Sharp Decline; Hungary and Slovakia, Show Continued Strength

Chain Store Sales Fell With Gasoline Prices

Small Business Optimism Recovered

Small Business Optimism Recovered