Robert Brusca

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100330j.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>Despite the month&#8217;s sharp drop in output, the chart of Japan&#8217;s
sequential growth rates is a very encouraging picture of an economy in
transition. Still it offers no iron-clad promise for the future. The
chart shows the drop of IP into recession. Of course the various lines
on the chart drop sequentially with the shortest growth rate going down
first (3-Mo) then the six-month rate and finally the Yr/Yr rate. Of
course the shortest period growth rate makes the largest swings as well
and we see that carried into recovery, there is a nice symmetry between
the lows and thighs of the 3-month and six mo growth rates. The Yr/Yr
rate is still rising.</p>
<p>After the clear recession gyration to new growth rate lows and
new growth rate highs, the various growth rate series have settled down
to a steady growth path at 25%- still too strong to be sustainable. In
the current month we see that path ratcheting a bit lower. Still the
six- and three-month growth rates are fairly steady and the Yr/Yr pace
is still rising.</p>
<p>As I said at the start there is nothing in this a pattern that
assures a soft landing ahead. But the behavior in the indices is just
what you would want and expect from a sold recovery that develops after
a downturn. Japan still needs to slow its year-over-year advance to
something that is more sustainable. And, beyond the numbers, Japan
needs to spread the recovery beyond its export sector.</p>
<p>The table shows us that for all the gyrations in IP overall IP
is still just 82.9% of its cycle peak. Its transportation output is
about 25% below its cycle peak. Investment goods lag the most at only
73.7% of their cycle peak while electric and gas output is closest to
full recovery at nearly 95% of its peak level of output in this cycle.</p>
<p>In the current quarter, despite the sharp drop in output in
February, IP is still growing in excess of 20 percent annual rates for
the headline series. Consumer goods, textiles and mining are the weak
sectors in the unfolding quarter-to-date. Auto output has been strong
but we may see a shift there due to the problems at Toyota. Still Japan
is putting up a very good profile despite the drop in IP in February.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col"> <b>Japan
Industrial Production Trends</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td style="font-weight: bold;" colspan="3">m/m
%</td>
<td style="font-weight: bold;" colspan="3">Saar
%</td>
<td style="font-weight: bold;">Yr/Yr</td>
<td colspan="1" rowspan="2" scope="col">Qtr-2-Date<br>&nbsp;% AR</td>
<td colspan="1" rowspan="2" scope="col">%of Cycle<br>&nbsp;Peak</td>
</tr>
<tr class="grey1">
<td class="firstcol">Seas Adjusted</td>
<td>Feb-10</td>
<td>Jan-10</td>
<td>Dec-09</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>

</tr>
<tr>
<td class="firstcol">Mining
&amp; MFG</td>
<td>-0.9%</td>
<td>2.7%</td>
<td>1.9%</td>
<td>15.9%</td>
<td>18.4%</td>
<td>31.4%</td>
<td>-36.9%</td>
<td>22.3%</td>
<td>82.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Total
Industry</td>
<td>-1.1%</td>
<td>3.1%</td>
<td>1.7%</td>
<td>15.8%</td>
<td>18.0%</td>
<td>29.8%</td>
<td>-35.7%</td>
<td>23.2%</td>
<td>83.5%</td>
</tr>
<tr>
<td class="firstcol"> MFG</td>
<td>-0.9%</td>
<td>2.6%</td>
<td>1.9%</td>
<td>15.4%</td>
<td>18.2%</td>
<td>31.2%</td>
<td>-36.9%</td>
<td>21.7%</td>
<td>82.8%</td>
</tr>
<tr>
<td class="firstcol">Textiles</td>
<td>-4.1%</td>
<td>1.9%</td>
<td>-0.9%</td>
<td>-11.9%</td>
<td>-1.5%</td>
<td>-4.9%</td>
<td>-20.8%</td>
<td>-4.2%</td>
<td>70.6%</td>
</tr>
<tr>
<td class="firstcol">T-port</td>
<td>-2.0%</td>
<td>5.9%</td>
<td>-2.9%</td>
<td>3.0%</td>
<td>41.3%</td>
<td>91.0%</td>
<td>-60.0%</td>
<td>26.9%</td>
<td>76.2%</td>
</tr>
<tr style="font-weight: bold;" class="grey3">
<td colspan="10" class="firstcol">Product
Group</td>
</tr>
<tr>
<td class="firstcol"> Consumer Gds</td>
<td>-2.7%</td>
<td>2.7%</td>
<td>-0.7%</td>
<td>-3.3%</td>
<td>2.6%</td>
<td>22.9%</td>
<td>-30.5%</td>
<td>6.6%</td>
<td>85.3%</td>
</tr>
<tr>
<td class="firstcol"> Intermediate Gds</td>
<td>-0.7%</td>
<td>3.2%</td>
<td>1.3%</td>
<td>16.2%</td>
<td>20.3%</td>
<td>46.3%</td>
<td>-41.9%</td>
<td>24.0%</td>
<td>84.5%</td>
</tr>
<tr>
<td class="firstcol"> Investment Gds</td>
<td>2.0%</td>
<td>2.3%</td>
<td>1.2%</td>
<td>24.2%</td>
<td>30.9%</td>
<td>11.8%</td>
<td>-32.5%</td>
<td>28.8%</td>
<td>73.7%</td>
</tr>
<tr>
<td class="firstcol">Mining</td>
<td>1.5%</td>
<td>1.3%</td>
<td>2.6%</td>
<td>23.7%</td>
<td>-3.1%</td>
<td>-1.6%</td>
<td>-6.5%</td>
<td>9.5%</td>
<td>87.3%</td>
</tr>
<tr>
<td class="firstcol">
Electric&amp;Gas</td>
<td>0.9%</td>
<td>1.6%</td>
<td>0.5%</td>
<td>12.4%</td>
<td>21.6%</td>
<td>8.1%</td>
<td>-12.2%</td>
<td>16.3%</td>
<td>94.9%</td>
</tr>
</tbody>
</table>
</body></html>

Despite the month’s sharp drop in output, the chart of Japan’s sequential growth rates is a very encouraging picture of an economy in transition. Still it offers no iron-clad promise for the future. The chart shows the drop of IP into [...]

Is Japan Completing Its Transition To Growth From Recession?

Tom Moeller

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100330a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>News-wire headlines indicate that the rebound in home prices
has stalled. Seasonally adjusted, the Case Shiller Home Price Index
fell during January by 0.4% for the fourth consecutive month. This,
however, overstates the weakness since seasonally adjusted prices have
been rising slightly since last June. Regardless, the y/y trend paints
a different picture of improvement. The 0.7% decline versus last
January compares to a 19.0% y/y rate of decline at its worst one year
ago. That's not a barn-burning improvement, however, and it may not go
much further unless home sales improve.</p>
<p>The narrower 10 City Composite Index rose a seasonally
adjusted 0.4% (-0.0% y/y) for the second month. The 12-month decline
also eased from -19.4% at its worst. By far, these negative comparisons
outpace those during the 1990-91 recession when home prices fell 6.3%.</p>
<p>The performance of home prices continues to vary around the
country. During January, yearly price gains improved in twelve cities
including Boston, San Diego, Los Angeles, San Francisco, Denver, Dallas
and Washington D.C. They continued down in seven cities including
Atlanta, Chicago, Miami, Detroit and Seattle.</p>
<p>The Case Shiller home price series are value-weighted, i.e., a
greater index weight is assigned to more expensive homes. The
S&amp;P/Case-Shiller home price series can be found in Haver's <b>USECON</b>
database and the city data highlighted below is in the <b>REGIONAL</b>
database.</p>
<p><b>Responding to the foreclosure crisis&#8212;A conference
summary </b>from the Federal Reserve Bank of Chicago is
available <a href="http://chicagofed.org/digital_assets/publications/chicago_fed_letter/2010/cflapril2010_273b.pdf">here</a>.</p>
</span><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100330b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100330c.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b>S&amp;P/Case-Shiller
Home Price Index (SA, Jan 00 = 100)</b></th>
<th scope="col"><b>January m/m</b></th>
<th scope="col"><b>December m/m</b></th>
<th scope="col"><b>November m/m</b></th>
<th scope="col"><b>Jan. y/y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>20 City Composite Index</b></td>
<td>0.3</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.7%</td>
<td>-13.3%</td>
<td>-15.7%</td>
<td>-3.8%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">&nbsp; <b>Regional
Indicators</b></td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;&nbsp;&nbsp;&nbsp;
Atlanta</b></td>
<td>-0.5</td>
<td>0.0</td>
<td>0.1</td>
<td>-2.1</td>
<td>-11.6</td>
<td>-8.5</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;&nbsp;&nbsp;&nbsp;
Boston</b></td>
<td>0.3</td>
<td>0.7</td>
<td>0.6</td>
<td>1.5</td>
<td>-4.9</td>
<td>-5.7</td>
<td>-4.0</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;&nbsp;&nbsp;&nbsp;
Chicago</b></td>
<td>-0.8</td>
<td>-0.7</td>
<td>-0.7</td>
<td>-4.3</td>
<td>-14.2</td>
<td>-10.0</td>
<td>-1.0</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;&nbsp;&nbsp;&nbsp;
Dallas</b></td>
<td>-0.3</td>
<td>0.2</td>
<td>0.9</td>
<td>4.2</td>
<td>-2.3</td>
<td>-3.2</td>
<td>0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;<b>&nbsp;&nbsp;&nbsp;
Denver</b></td>
<td>0.1</td>
<td>-0.0</td>
<td>0.3</td>
<td>2.8</td>
<td>-2.8</td>
<td>-4.9</td>
<td>-1.7</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;&nbsp;&nbsp;&nbsp;
Los Angeles</b></td>
<td>1.8</td>
<td>1.2</td>
<td>1.4</td>
<td>3.8</td>
<td>-15.4</td>
<td>-24.2</td>
<td>-5.2</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;&nbsp;&nbsp;&nbsp;
New York</b></td>
<td>-0.3</td>
<td>-0.4</td>
<td>-0.9</td>
<td>-5.4</td>
<td>-9.8</td>
<td>-7.4</td>
<td>-2.8</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;&nbsp;&nbsp;&nbsp;
San Francisco</b></td>
<td>0.6</td>
<td>0.8</td>
<td>1.2</td>
<td>9.1</td>
<td>-18.4</td>
<td>-24.3</td>
<td>-4.5</td>
</tr>
</tbody>
</table>
</body></html>

News-wire headlines indicate that the rebound in home prices has stalled. Seasonally adjusted, the Case Shiller Home Price Index fell during January by 0.4% for the fourth consecutive month. This, however, overstates the weakness [...]

Case-Shiller Home Price Index Hits A Brick Wall?

Case-Shiller Home Price Index HitsA Brick Wall?

Louise Curley

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329e.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>The Economic Sentiment Indicator (ESI) of the European
Commission for the 16 countries in the Euro Area rose to 97.9 in March
from 95.9 in February. The ESI for the 27 countries in the European
Union rose to 99.6 from 97.6. Both indicators have risen substantially
from their low points reached in February and March of this year and
are close to their long term average of 100, but are well below their
pre crisis peak. The first chart shows the history of the two
indicators.</p>
<p>The higher level of sentiment in the EU than in the EA
suggests that sentiment is somewhat higher in the non Euro Area
countries than in the Euro Area Countries. Arithmetically, the low
level of sentiment in Greece has reduced the level of average sentiment
in the Euro Area, but more important, Greece's problems have no doubt
dampened sentiment in the rest of the Euro Area. There were only 3
countries in the Euro Area in March that were at or above 100--Belgium
at 103.2, Finland at 102.2 and Germany at 100.4. These countries
together with Greece are shown in the second chart.</p>
<p>In the non Euro Area there were four countries where sentiment
was at or above 100--the United Kingdom at 100.9, Poland at 101.5,
Denmark at 110.0, and Sweden at 111.5. These are shown in the third
chart</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329f.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329g.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Economic
Sentiment Indicator</th>
<th scope="col"><b>Mar 10&nbsp;</b></th>
<th scope="col"><b>Feb 10&nbsp;</b></th>
<th scope="col"><b>Mar 09</b></th>
<th scope="col"><b>Recent Low&nbsp;</b></th>
<th scope="col"><b>Date</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">Euro Area</td>
<td style="font-weight: bold;">97.9</td>
<td style="font-weight: bold;">95.9</td>
<td style="font-weight: bold;">96.0</td>
<td style="font-weight: bold;">68.2</td>
<td style="font-weight: bold;">2/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Greece</td>
<td>69.6</td>
<td>72.4</td>
<td>76.1</td>
<td>60.4</td>
<td>3/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>100.4</td>
<td>97.0</td>
<td>96.1</td>
<td>75.2</td>
<td>3/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Belgium</td>
<td>103.2</td>
<td>98.1</td>
<td>97.7</td>
<td>72.6</td>
<td>2/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Finland</td>
<td>102.2</td>
<td>102.8</td>
<td>99.4</td>
<td>77.7</td>
<td>9/09</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">European Union</td>
<td style="font-weight: bold;">99.6</td>
<td style="font-weight: bold;">97.6</td>
<td style="font-weight: bold;">97.2</td>
<td style="font-weight: bold;">68.2</td>
<td style="font-weight: bold;">2/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Denmark</td>
<td>110.0</td>
<td>105.7</td>
<td>105.3</td>
<td>66.5</td>
<td>2/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Sweden</td>
<td>111.5</td>
<td>110.5</td>
<td>106.6</td>
<td>78.8</td>
<td>4/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; United
Kingdom</td>
<td>100.9</td>
<td>98.3</td>
<td>98.2</td>
<td>65.4</td>
<td>2/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Poland</td>
<td>101.5</td>
<td>98.8</td>
<td>94.6</td>
<td>79.0</td>
<td>3/09</td>
</tr>
</tbody>
</table>
</body></html>

The Economic Sentiment Indicator (ESI) of the European Commission for the 16 countries in the Euro Area rose to 97.9 in March from 95.9 in February. The ESI for the 27 countries in the European Union rose to 99.6 from 97.6. Both [...]

Economic Sentiment In Non Euro Countries Exceeds That Of Euro Area Countries

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329a.jpg" align="right" border="0" height="265" width="353">
Overall <b>personal income</b> was unchanged in
February following a 0.3% January increase, originally reported at
0.1%. The latest reading was the weakest since July and it disappointed
Consensus expectations for a 0.1% uptick. Though moderate, these gains
were enough to lift yearly income growth to 2.0% after the 1.7% decline
in 2009. The three-month rate of increase also improved to 2.8%.
Disposable income was unchanged after January's 0.2% decline. These
moderate income gains caused the savings rate to decline to 3.1%, its
lowest since late-2008. The rate still was up, however, from the 1.0%
low at the beginning of the last recession.</p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329b.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: right;" align="left">
Moderate employment declines left wages &amp; salaries
unchanged for the second month in the last three. Nevertheless the
modest y/y drop is improved from the sharp 4.0% decline last year.
Wages in the factory sector slipped by 0.2% and the 4.7% y/y decline
was half that during all of last year. In the private service sector
wages ticked up 0.1% for the second month in the last three. Here
again, however, the 1.0% y/y gain is improved versus last year's 3.8%
decline. Working the other, a 0.1% uptick in government sector wages
was behind a deceleration in y/y growth to 2.3%, its lowest since
early-1994.</p>
<p>The weak housing market pulled proprietors' income down 0.6%
(+1.9% y/y) for the second consecutive month. Lower interest rates
caused interest income also to slip 0.1% but the y/y change of -0.6%
was improved from the 5.3% decline during 2009. Dividend income again
fell a sharp 2.8% (-11.6% y/y). Finally, unemployment insurance
benefits rose 4.2% (54.4% y/y) and offset a January decline.</p>
<p><b>Personal spending </b>rose 0.3%, down from
0.4% gains during the prior two months. Spending on gasoline fell 1.0%
after the 7.3% January jump. Higher prices kept the y/y gain strong at
31.2% but real spending rose just 0.8% y/y. Nominal apparel spending
rose a strong 1.2% (0.1% y/y) while spending on home furnishings rose
0.9% (0.5% y/y). That latter decline is improved from a 6.2% drop
during all of last year Spending on services continued firm at 2.6% y/y
but that was raised by a 4.5% jump in health care expenditures and a
3.1% gain in spending on financial &amp; insurance. Offsetting
these gains was a 3.9% decline in spending on motor vehicles &amp;
parts (-0.1% y/y).</p>
<p>The <b>PCE chain price index</b> slipped modestly
with lower gasoline prices. The core PCE price deflator again was
unchanged reflecting a 0.6% decline in furniture prices (-1.6% y/y) and
a modest 0.3% increase (-4.2% y/y) in appliance prices. Services prices
ticked up 0.1% (1.3% y/y) led by a 0.3% gain (2.4% y/y) in health care.
Offsetting some of this strength was a 0.5% decline in computer prices
(-12.5% y/y) and a 0.7% fall in clothing prices (-0.2% y/y).</p>
<p>The personal income &amp; consumption figures are
available in Haver's <b>USECON</b> and <b>USNA</b>
databases.</p>
<p><b>Lessons from the Crisis Stress Tests</b> is the
title of last week's speech by Fed Governor Daniel K. Tarullo and it
can be found <a href="http://www.federalreserve.gov/newsevents/speech/tarullo20100326a.htm">here</a>.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329c.jpg" style="border: 0px solid ; width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329d.jpg" style="border: 0px solid ; width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM" style="color: black;"><b>Disposition of Personal Income</b></a><b>
(%)&nbsp;</b></th>
<th scope="col"><b>February</b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>Personal Income</b></td>
<td>0.0</td>
<td>0.3</td>
<td>0.4</td>
<td>2.0</td>
<td>-1.7</td>
<td>2.9</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;
&nbsp;Disposable Personal Income</b></td>
<td>0.0</td>
<td>-0.2</td>
<td>0.5</td>
<td>2.8</td>
<td>1.1</td>
<td>3.9</td>
<td>4.9</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Personal Consumption
Expenditures</b></td>
<td>0.3</td>
<td>0.4</td>
<td>0.4</td>
<td>3.4</td>
<td>-0.4</td>
<td>3.1</td>
<td>5.4</td>
</tr>
<tr>
<td class="firstcol"><b>Saving Rate</b></td>
<td>3.1</td>
<td>3.4</td>
<td>4.0</td>
<td>3.4 (Feb.'09)</td>
<td>4.3</td>
<td>2.6</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>PCE Chain Price Index</b></td>
<td>-0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>0.2</td>
<td>3.3</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;&nbsp;
Less food &amp; energy</b></td>
<td>0.0</td>
<td>-0.0</td>
<td>0.1</td>
<td>1.3</td>
<td>1.5</td>
<td>2.4</td>
<td>2.4</td>
</tr>
</tbody>
</table>
</body></html>

Overall personal income was unchanged in February following a 0.3% January increase, originally reported at 0.1%. The latest reading was the weakest since July and it disappointed Consensus expectations for a 0.1% uptick. Though [...]

U.S. Personal Income & Spending Both Moderate

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<span id="articletext">
<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329a.jpg" align="right" border="0" height="265" width="353">
Overall <b>personal income</b> was unchanged in
February following a 0.3% January increase, originally reported at
0.1%. The latest reading was the weakest since July and it disappointed
Consensus expectations for a 0.1% uptick. Though moderate, these gains
were enough to lift yearly income growth to 2.0% after the 1.7% decline
in 2009. The three-month rate of increase also improved to 2.8%.
Disposable income was unchanged after January's 0.2% decline. These
moderate income gains caused the savings rate to decline to 3.1%, its
lowest since late-2008. The rate still was up, however, from the 1.0%
low at the beginning of the last recession.</p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329b.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: right;" align="left">
Moderate employment declines left wages &amp; salaries
unchanged for the second month in the last three. Nevertheless the
modest y/y drop is improved from the sharp 4.0% decline last year.
Wages in the factory sector slipped by 0.2% and the 4.7% y/y decline
was half that during all of last year. In the private service sector
wages ticked up 0.1% for the second month in the last three. Here
again, however, the 1.0% y/y gain is improved versus last year's 3.8%
decline. Working the other, a 0.1% uptick in government sector wages
was behind a deceleration in y/y growth to 2.3%, its lowest since
early-1994.</p>
<p>The weak housing market pulled proprietors' income down 0.6%
(+1.9% y/y) for the second consecutive month. Lower interest rates
caused interest income also to slip 0.1% but the y/y change of -0.6%
was improved from the 5.3% decline during 2009. Dividend income again
fell a sharp 2.8% (-11.6% y/y). Finally, unemployment insurance
benefits rose 4.2% (54.4% y/y) and offset a January decline.</p>
<p><b>Personal spending </b>rose 0.3%, down from
0.4% gains during the prior two months. Spending on gasoline fell 1.0%
after the 7.3% January jump. Higher prices kept the y/y gain strong at
31.2% but real spending rose just 0.8% y/y. Nominal apparel spending
rose a strong 1.2% (0.1% y/y) while spending on home furnishings rose
0.9% (0.5% y/y). That latter decline is improved from a 6.2% drop
during all of last year Spending on services continued firm at 2.6% y/y
but that was raised by a 4.5% jump in health care expenditures and a
3.1% gain in spending on financial &amp; insurance. Offsetting
these gains was a 3.9% decline in spending on motor vehicles &amp;
parts (-0.1% y/y).</p>
<p>The <b>PCE chain price index</b> slipped modestly
with lower gasoline prices. The core PCE price deflator again was
unchanged reflecting a 0.6% decline in furniture prices (-1.6% y/y) and
a modest 0.3% increase (-4.2% y/y) in appliance prices. Services prices
ticked up 0.1% (1.3% y/y) led by a 0.3% gain (2.4% y/y) in health care.
Offsetting some of this strength was a 0.5% decline in computer prices
(-12.5% y/y) and a 0.7% fall in clothing prices (-0.2% y/y).</p>
<p>The personal income &amp; consumption figures are
available in Haver's <b>USECON</b> and <b>USNA</b>
databases.</p>
<p><b>Lessons from the Crisis Stress Tests</b> is the
title of last week's speech by Fed Governor Daniel K. Tarullo and it
can be found <a href="http://www.federalreserve.gov/newsevents/speech/tarullo20100326a.htm">here</a>.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329c.jpg" style="border: 0px solid ; width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329d.jpg" style="border: 0px solid ; width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM" style="color: black;"><b>Disposition of Personal Income</b></a><b>
(%)&nbsp;</b></th>
<th scope="col"><b>February</b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>Personal Income</b></td>
<td>0.0</td>
<td>0.3</td>
<td>0.4</td>
<td>2.0</td>
<td>-1.7</td>
<td>2.9</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;
&nbsp;Disposable Personal Income</b></td>
<td>0.0</td>
<td>-0.2</td>
<td>0.5</td>
<td>2.8</td>
<td>1.1</td>
<td>3.9</td>
<td>4.9</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Personal Consumption
Expenditures</b></td>
<td>0.3</td>
<td>0.4</td>
<td>0.4</td>
<td>3.4</td>
<td>-0.4</td>
<td>3.1</td>
<td>5.4</td>
</tr>
<tr>
<td class="firstcol"><b>Saving Rate</b></td>
<td>3.1</td>
<td>3.4</td>
<td>4.0</td>
<td>3.4 (Feb.'09)</td>
<td>4.3</td>
<td>2.6</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>PCE Chain Price Index</b></td>
<td>-0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>0.2</td>
<td>3.3</td>
<td>2.7</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp;&nbsp;
Less food &amp; energy</b></td>
<td>0.0</td>
<td>-0.0</td>
<td>0.1</td>
<td>1.3</td>
<td>1.5</td>
<td>2.4</td>
<td>2.4</td>
</tr>
</tbody>
</table>
<span id="articletitle">Economic Sentiment In Non Euro
Countries Exceeds That Of Euro Area Countries</span><br>
<span id="byline">by <a href="/comment/Curley.html">Louise
Curley</a> March 29, 2010</span>
<span id="articletext">
<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329e.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>The Economic Sentiment Indicator (ESI) of the European
Commission for the 16 countries in the Euro Area rose to 97.9 in March
from 95.9 in February. The ESI for the 27 countries in the European
Union rose to 99.6 from 97.6. Both indicators have risen substantially
from their low points reached in February and March of this year and
are close to their long term average of 100, but are well below their
pre crisis peak. The first chart shows the history of the two
indicators.</p>
<p>The higher level of sentiment in the EU than in the EA
suggests that sentiment is somewhat higher in the non Euro Area
countries than in the Euro Area Countries. Arithmetically, the low
level of sentiment in Greece has reduced the level of average sentiment
in the Euro Area, but more important, Greece's problems have no doubt
dampened sentiment in the rest of the Euro Area. There were only 3
countries in the Euro Area in March that were at or above 100--Belgium
at 103.2, Finland at 102.2 and Germany at 100.4. These countries
together with Greece are shown in the second chart.</p>
<p>In the non Euro Area there were four countries where sentiment
was at or above 100--the United Kingdom at 100.9, Poland at 101.5,
Denmark at 110.0, and Sweden at 111.5. These are shown in the third
chart</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329f.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100329g.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Economic
Sentiment Indicator</th>
<th scope="col"><b>Mar 10&nbsp;</b></th>
<th scope="col"><b>Feb 10&nbsp;</b></th>
<th scope="col"><b>Mar 09</b></th>
<th scope="col"><b>Recent Low&nbsp;</b></th>
<th scope="col"><b>Date</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">Euro
Area</td>
<td style="font-weight: bold;">97.9</td>
<td style="font-weight: bold;">95.9</td>
<td style="font-weight: bold;">96.0</td>
<td style="font-weight: bold;">68.2</td>
<td style="font-weight: bold;">2/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Greece</td>
<td>69.6</td>
<td>72.4</td>
<td>76.1</td>
<td>60.4</td>
<td>3/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>100.4</td>
<td>97.0</td>
<td>96.1</td>
<td>75.2</td>
<td>3/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Belgium</td>
<td>103.2</td>
<td>98.1</td>
<td>97.7</td>
<td>72.6</td>
<td>2/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Finland</td>
<td>102.2</td>
<td>102.8</td>
<td>99.4</td>
<td>77.7</td>
<td>9/09</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">European
Union</td>
<td style="font-weight: bold;">99.6</td>
<td style="font-weight: bold;">97.6</td>
<td style="font-weight: bold;">97.2</td>
<td style="font-weight: bold;">68.2</td>
<td style="font-weight: bold;">2/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Denmark</td>
<td>110.0</td>
<td>105.7</td>
<td>105.3</td>
<td>66.5</td>
<td>2/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Sweden</td>
<td>111.5</td>
<td>110.5</td>
<td>106.6</td>
<td>78.8</td>
<td>4/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; United
Kingdom</td>
<td>100.9</td>
<td>98.3</td>
<td>98.2</td>
<td>65.4</td>
<td>2/09</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Poland</td>
<td>101.5</td>
<td>98.8</td>
<td>94.6</td>
<td>79.0</td>
<td>3/09</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Personal Income &Spending Both Moderate

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<span id="articletext">
<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100326e.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>Italian consumers used to feel better. They used to feel a lot
better just a few short months ago. In December of 2009 at a level of
113.6 Italy&#8217;s consumer confidence measure compiled by ISAE hit what is
for now its cycle high. That reading had barely surpassed the December
2006 confidence peak-reading of 113.4. But December 2009 stood as the
best reading since July 2002 and all seemed good. In retrospect,
Italy&#8217;s funk goes back to that late 2000 transitional period when
confidence dropped from very strong levels to begin its period of what
has been readings that have persisted at much lower levels. For Italy
it&#8217;s problems are not just the financial crisis and economic recovery.</p>
<p>Now it is clear that the bloom is off the consumer&#8217;s rose.
That rose seemed to bloom early and with all of Italy&#8217;s troubles it was
hard to tell what the real truth was. The truth appears to be that
Italy&#8217;s consumers were overly optimistic or actually in denial. Their
spirits are now deflating fast.</p>
<p>Italian consumers rate the past twelve months as better in
March than they did in February. But that was only a 61st percentile of
the range response. In March, looking to the more important next
12-months, the overall rating remains what is was in February but that
is a lower 34th percentile of range response. In other words the level
of the reading is nearly in the lower one-third of its range.
Expectations of unemployment are up and that reading is in the top 2%
of its range. Unemployment fears have really ratcheted up in Italy.
It&#8217;s possible that events in fellow Mediterranean country Greece are
having some chilling knock-on effects.</p>
<p>Despite these responses consumers rate their household
finances as one point improved over the next 12-months compared to last
month&#8217;s outlook reading; it&#8217;s a 36 range percentile assessment.
Households also rate current savings as high, in the top 7% of their
range, but future savings are rated in the bottom 25th percentile of
their range. But where the rubber hits the road and the spending
environment is assessed Italian consumers place the assessment right in
the middle at the 54th percentile of the range. Good time to spend?
Mezzo-mezzo.</p>
<p>There is a lot of confusion in Italy about where the country
is going and how fast. There is a lot of concern about unemployment.
Recent events in the e-Zone must have Italians worried; they can see
that if they slip-up there is no safety net that will be thrown under
them, maybe a blanket thrown over them after-the-fact. The thought is
chilling. Not even pasta can salve the pain.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"><b>Italy ISAE
Consumer Confidence</b> </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">&nbsp;</td>
<td colspan="2">Since 1992</td>
<td>Rank</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Mar-10</td>
<td>Feb-10</td>
<td>Jan-10</td>
<td>Dec-09</td>
<td>Percentile</td>
<td>Rank</td>
<td>percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Confidence</td>
<td>106.3</td>
<td>107.7</td>
<td>111.6</td>
<td>113.6</td>
<td>37.4</td>
<td>146</td>
<td>31.5%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="8" class="firstcol">Last 12 months</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; OVERALL
SITUATION</td>
<td>-63</td>
<td>-67</td>
<td>-54</td>
<td>-57</td>
<td>67.2</td>
<td>83</td>
<td>61.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; PRICE
TRENDS</td>
<td>-41.5</td>
<td>-45</td>
<td>-38</td>
<td>-41</td>
<td>12.6</td>
<td>206</td>
<td>3.3%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="8" class="firstcol">Next 12months</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; OVERALL
SITUATION</td>
<td>-14</td>
<td>-14</td>
<td>-1</td>
<td>-1</td>
<td>39.7</td>
<td>140</td>
<td>34.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; PRICE
TRENDS</td>
<td>17</td>
<td>16</td>
<td>11.5</td>
<td>8.5</td>
<td>39.5</td>
<td>48</td>
<td>77.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
UNEMPLOYMENT</td>
<td>26</td>
<td>25</td>
<td>16</td>
<td>16</td>
<td>82.4</td>
<td>4</td>
<td>98.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
HOUSEHOLD BUDGET</td>
<td>0</td>
<td>2</td>
<td>-1</td>
<td>1</td>
<td>16.3</td>
<td>202</td>
<td>5.2%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="8" class="firstcol">HOUSEHOLD FIN SITUATION</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Last 12
months</td>
<td>-38</td>
<td>-39</td>
<td>-36</td>
<td>-37</td>
<td>36.7</td>
<td>138</td>
<td>35.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;
Next12 months</td>
<td>-6</td>
<td>-7</td>
<td>-6</td>
<td>-3</td>
<td>59.2</td>
<td>136</td>
<td>36.2%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="8" class="firstcol">HOUSEHOLD SAVINGS</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current</td>
<td>69</td>
<td>73</td>
<td>78</td>
<td>73</td>
<td>81.7</td>
<td>13</td>
<td>93.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Future</td>
<td>-29</td>
<td>-24</td>
<td>-23</td>
<td>-20</td>
<td>43.2</td>
<td>159</td>
<td>25.4%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="8" class="firstcol">MAJOR Purchases</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current</td>
<td>-40</td>
<td>-39</td>
<td>-36</td>
<td>-38</td>
<td>47.1</td>
<td>98</td>
<td>54.0%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Total
number of months: Back to Jul-92</td>
</tr>
</tbody>
</table>
</body></html>

Italian consumers used to feel better. They used to feel a lot better just a few short months ago. In December of 2009 at a level of 113.6 Italy’s consumer confidence measure compiled by ISAE hit what is for now its cycle high. That [...]

Italian Households Take Another Step Back In Comfort Italian Consumer Confidence Turns The Corner, The Wrong Corner

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<span id="articletext">
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100326a.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100326b.jpg" style="width: 312px; height: 265px;"></p>
<p>Last quarter was a strong one for the U.S. economy and the
revised picture is little different from the one depicted earlier. The
latest revision, however, lowered the growth rate slightly to 5.6% from
5.9%. Nevertheless, last quarter's growth remained the best since 3Q
2003 and it pushed the y/y change into (slightly) positive territory
for the first time since early-2008. The revision exceeded Consensus
expectations for 5.9% growth.</p>
<p> The addition to growth from inventories was notched down to
3.8 percentage points. The strength in rebuilding was necessitated by
vigorous and unprecedented decumulation dating back to 2005.</p>
<p>Growth in domestic final demand also was shaved to a still
slow 1.4% from 1.6%. Business investment in equipment &amp;
software was revised up slightly to 19.0% (-7.5% y/y) after a 1.5% 3Q
rise. Investment in business construction, however, offset much of this
increase with a 18.1% decline (-25.3% y/y) which was more than
estimated last month. Growth in residential investment also was revised
down to 3.7% (-12.6% y/y) though it remains the second consecutive
quarterly increase. Personal consumption growth was little revised at
1.6% (1.0% y/y) following a 2.8% 3Q increase. Finally, government
spending dropped an unrevised 1.3% (+1.3% y/y), led by a decline in
defense spending as well as lower spending by state and local
governments.</p>
<p>Improvement in the foreign trade deficit added an unrevised
0.3 percentage points to last quarter's gain in GDP. Strong growth in
exports of 22.8% (-0.7% y/y) was little changed. That surge was offset,
however, by a 15.8% (-6.6% y/y) jump in imports.</p>
<p>Price inflation was revised slightly higher to 0.5% as
measured by the chained GDP price index. Diminished price gains for all
of last year pulled the annual increase down to 1.2% which was nearly
its weakest increase since the early-1960s. The personal consumption
chain price index rose a quickened 2.1%. However, it increased just
0.2% for the whole year owing to the yearly decline in energy prices.
The price index for fixed business investment fell 1.4% (-2.9% y/y),
the fourth consecutive quarterly decline. A 2.7% increase (-2.6% y/y)
in the residential investment price index offset a 3Q decline.</p>
<p>Corporate profits rose 8.0% (30.6% y/y) last quarter. The gain
was driven by an 18.6% jump in financial sector earnings, which are up
more than three-fold during the last year due to lower interest rates.
Nonfinancial sector earnings benefitted from the economic recovery and
cost cutting. The 8.7% (11.5% y/y) increase was offset, however, by a
5.0% decline (-7.6% y/y) in repatriated foreign sector profits.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100326c.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100326d.jpg" style="width: 312px; height: 265px;">
<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/USECON/@E7/@E701/@E701.HTM"><b>Chained 2005$, % AR</b></a></th>
<th scope="col"><b>4Q '09&nbsp; Final</b></th>
<th scope="col"><b>4Q '09&nbsp; Preliminary</b></th>
<th scope="col"><b>4Q '09 <br>
Advance</b></th>
<th scope="col"><b>3Q '09</b></th>
<th scope="col"><b>4Q Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>GDP</b></td>
<td>5.6</td>
<td>5.9</td>
<td>5.7</td>
<td>2.2</td>
<td>0.1</td>
<td>-2.4</td>
<td>0.4</td>
<td>2.1</td>
</tr>
<tr>
<td class="firstcol"><b>&nbsp;&nbsp;Inventory
Effect</b></td>
<td>3.8</td>
<td>3.9</td>
<td>3.4</td>
<td>0.7</td>
<td>0.2</td>
<td>-0.7</td>
<td>-0.4</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Final Sales</b></td>
<td>1.7</td>
<td>1.9</td>
<td>2.2</td>
<td>1.5</td>
<td>-0.1</td>
<td>-1.7</td>
<td>0.8</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol"><b>&nbsp;&nbsp;Foreign
Trade Effect</b></td>
<td>0.3</td>
<td>0.3</td>
<td>0.5</td>
<td>-0.8</td>
<td>0.9</td>
<td>1.0</td>
<td>-1.2</td>
<td>0.8</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Domestic Final Demand</b></td>
<td>1.4</td>
<td>1.6</td>
<td>1.7</td>
<td>2.3</td>
<td>-1.0</td>
<td>-2.7</td>
<td>-0.4</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol"><b>Chained GDP Price Index</b></td>
<td>0.5</td>
<td>0.4</td>
<td>0.6</td>
<td>0.4</td>
<td>0.7</td>
<td>1.2</td>
<td>2.1</td>
<td>2.9</td>
</tr>
</tbody>
</table>
</body></html>

Last quarter was a strong one for the U.S. economy and the revised picture is little different from the one depicted earlier. The latest revision, however, lowered the growth rate slightly to 5.6% from 5.9%. Nevertheless, last [...]

U.S. GDP 4Q Increase Is Lowered Slightly; Profits Are Firm

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

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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

Largest October layoffs since 2003, led by technology

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PMIs show still-elevated but slowing US inflation

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Tian Yong Woon

In this week’s Letter, we cover the latest developments and implications of the Middle East conflict for Asia, while also making space for other important themes, including artificial intelligence (AI). The Middle East conflict remains in a no deal state coming out of the weekend, though some early Monday optimism emerged in Asian markets following Iran’s reported offer to reopen the Strait of Hormuz (chart 1). Nonetheless, as the Strait closure drags on, so too do the fiscal costs of domestic fossil fuel subsidies across Asia, which have been shown to move closely with crude oil prices (chart 2). While such measures offer direct relief by cushioning household energy costs, they remain difficult to sustain over the long haul.

Over the week, we also saw a further fraying in regional monetary policy trends, with the Philippines hiking its policy rate for the first time in about two years amid inflation concerns, while Indonesia stood pat on rates (chart 3). Investor attention is likely to remain fixed on monetary policy this week, with the Bank of Japan due to decide on policy. Expectations for an April hike have faded amid the persistent Middle East conflict, though yen weakness continues to present a source of concern (chart 4). The week also brings China’s latest PMI readings (chart 5), adding to the recent run of hard data accompanying the Q1 GDP release.

Beyond the Middle East conflict, the evolution of AI continues to demand close attention. Before geopolitical tensions took centre stage, AI was the dominant market narrative — and that enthusiasm has hardly faded. If anything, recent developments suggest the story is broadening: use cases are expanding, scalability is improving, and access is widening beyond large corporates to the mass market — increasingly spilling into the realm of physical AI. It may well be this persistent wave of optimism that is helping to underpin equity valuations, even as the geopolitical backdrop darkens (chart 6).

**The Middle East conflict**
About two months in, we remain stuck in the limbo of the US-Iran conflict, which has left the Strait of Hormuz largely closed and much of the world starved of the critical oil flows needed to power the global economy. The back and forth between the US and Iran has persisted in recent weeks, with both sides again failing to reach a peace deal over the weekend, though Monday’s news of Iran offering to reopen the Strait has revived some hope in markets. In truth, commodity and market valuations do not hinge so much on a peace deal itself, but rather on the resumption of oil flows through the Strait, something that could materialise even in the absence of a formal deal, though any agreement that includes and credibly delivers such a reopening would likely be warmly received by markets. Until then, market gyrations are likely to persist, with prices fluctuating in response to each new snippet of news. And until then, the world will continue both to be starved of, while gradually adapting to, the drip feed of oil flows emerging from the Strait.

260427T1.jpg

**The fiscal costs of the Middle East conflict**
As the Middle East conflict drags on, so too does the strain on fiscal resources across parts of Asia, as the costs of energy-related subsidy programmes continue to mount. While such programmes have an immediate, direct, and tangible impact in shielding households from surging energy costs, they are far from sustainable, particularly if oil prices remain well above targeted levels or stay elevated for an extended period. As chart 2 illustrates, the costs of these explicit subsidy programmes tend to rise closely with crude oil prices, as seen in India and Indonesia. Other measures adopted elsewhere, such as drawing down oil reserves, may be less fiscally costly, but are similarly difficult to sustain indefinitely. In both respects, the clock is ticking, and the world continues to hold its breath as the conflict drags on.

260427T2.jpg

**The latest central bank responses to the conflict**
Over the past week, Asia saw two central bank decisions. The Philippines’ (BSP) opted to deliver its first rate hike in about two years, while Indonesia’s (BI) chose to stand pat on policy rates and instead committed to stepped up FX intervention (chart 3). This latest round of decisions points to a further fraying of what had been a broad regional monetary policy consensus, namely that central banks would delay additional easing while maintaining a high bar for outright tightening. Domestic considerations, however, remain paramount. In the Philippines’ case, the central bank has moved to rein in inflation, which is already showing notable signs of price pass through stemming from disruptions linked to the Strait of Hormuz. That said, BSP is not the first in the region to buck the reluctance to tighten. Singapore’s central bank had already tightened policy in mid-April, albeit through its own distinct framework, given its use of the exchange rate rather than policy rates as the primary channel for monetary policy.

260427T3.jpg

**The week ahead**
Looking to the week ahead, a major central bank decision looms in Japan. Market expectations for the Bank of Japan to deliver a rate hike at its April meeting have ebbed amid the persistence of the Middle East conflict, to which Japan remains particularly vulnerable given its reliance on oil imports flowing through the Strait of Hormuz. At the same time, inflation in Japan has yet to become a major concern, with recent readings having picked up but not yet entering troubling territory. One potential source of concern, however, lies with the Japanese yen, which has remained on a weakening trend since early last year (chart 4). That depreciation has been one of the key arguments underpinning calls for further rate hikes.

260427T4.jpg

The week also brings China’s latest PMIs into focus. March saw a divergence between China’s official PMI readings, which improved, and the unofficial readings from RatingDog, which instead pulled back. Nonetheless, both official and unofficial gauges remained in expansionary territory (chart 5), with investors now watching closely to see whether that resilience can be sustained amid ongoing stresses from the Middle East, or whether offsetting drivers can continue to keep Chinese business sentiment and prospects buoyant.

260427T5.jpg

**Beyond the strait**
Moving beyond the Middle East conflict, a whole host of developments continue to unfold globally, many of which have in fact helped offset some of the pessimism wrought by the Strait’s chokehold. One such development is artificial intelligence (AI), which had dominated headlines before the outbreak of the conflict and continues to advance at breakneck pace. AI capabilities are still rapidly evolving, while practical applications, such as physical AI embodied in humanoid robots, are beginning to show broader and stronger use cases. Production of such robots is also becoming increasingly scalable and within reach not just for industrial complexes and healthcare, but for the mass market as well. It is perhaps growing optimism around these prospects that has helped keep equity valuations buoyant, even in the face of the festering conflict in the Middle East. Moreover, while concerns over AI-driven job displacement persist, new opportunities are emerging as well, particularly for AI adopters, with a growing share of job postings in Western economies increasingly referencing AI-related skills, as shown in chart 6.

260427T6.jpg

Asia

Economic Letter from Asia: Not Just About the Strait

260424E.jpg

The onset of the war in Iran appears to have hit the German economy extremely hard as the Ifo survey shows very substantial and broad-based decline across its survey in April. The Ifo survey features readings for five sectors as well as an aggregate reading, and it surveys them for climate, current conditions, and expectations. The decline in the Ifo survey is present for all three concepts and across all five sectors, marking the weakening in April as a highly significant and extremely disturbing development. Only manufacturing in the current conditions survey escapes a month-to-month decline.

**The Ifo sequences**: The **climate** reading fell both overall and across each of the five sectors. **Current conditions** declined for the overall and for four of the five sectors, with manufacturing the sole exception. **Expectations** declined for the overall and for all sectors. Several of the sector declines were for a very substantial magnitude, especially when compared to historic changes in these indexes.

**Monthly changes in readings—severe broad deterioration**
The month-to-month change in the climate reading has weakened more month-to-month 19% of the time. That overall result, however, is boosted by manufacturing where the monthly change has been weaker 35% of the time (on data back to 2011). However, all other sectors have seen climate weaker m/m only 2.3% to 6.3% of the time! The current situation readings weakened, with the headline weakening more m/m 11% of the time. This was boosted by manufacturing, the only sector that improved on the month; its ranking on change was in its 85th percentile—quite good and truly stand-alone good news. The other current changes by sector ranged from construction being weaker 1.7% of the time, to retailing that has been weaker about 30% of the time in terms of m/m changes. Expectation changes were uniformly terrible, with the headline drop weaker only 6.3% of the time and sector change month-to-month weaker between 9% and 1.7% of the time. The monthly weakening was uniform and substantial. I document it with these calculations, but you can also see it on the chart above.

**Climate**: The bottom line is that the all-sector index for climate fell to -20.3 in April from -18 in March, placing it at a 10.5 percentile standing on data since 1993. The sector ranking is the highest for construction with a 42.2 percentile standing and the weakness for services at a 1.1 percentile standing—weaker than the table reading nearly 99% of the time. In terms of percentile standing levels or monthly changes, conditions are closing in on grim.

**Current conditions**: Current conditions saw the all-sector index slip to -5.3 in April from -2.4 in March. The headline ranking stands at a 9.8 percentile mark, making it—like the climate reading—weaker than its current reading only about 10% of the time. The strongest reading under current conditions is for construction which has a 60.6 percentile standing; it is the only ranking in the table above its historic median. Manufacturing, the only sector in the survey that improved month-to-month, has a 22.5 percentile standing, while services record the weakest percentile standing under current conditions, at an 8.4 percentile standing.

**Expectations:** The all-sector index for expectations fell to -25.3 in April from -19.9 in March, placing it at a 6.3 percentile standing. The percentile standings across sectors range from a high of 9.5% for manufacturing to a low of 1.5% for retailing. Up until earlier this year, the Ifo was showing signs of improvement; however, all of that has simply collapsed in the last month. Weakness is across economic concepts and sectors, as documented above. For reference, the table also gives a separate set of rankings on where the various indexes stand since the invasion of Ukraine, since that was another marked event that drove the index, that had been improving after Covid, down to lower levels.  Ranked even on this reduced scale looking at conditions only since the invasion of Ukraine, when conditions have generally been weaker, the current rankings across the Ifo survey remained extremely weak. This is a very disturbing survey for the German economy.

260424.jpg

Germany

German Ifo Plunges Everywhere

Andrew Cates

**Energy shock lifts inflation, trims growth**
The IMF’s latest WEO revisions for 2026 broadly reflect the classic stagflationary impact of the recent Middle East energy shock, with growth downgraded and inflation revised higher across most major economies. Higher energy prices act as a tax on real incomes while simultaneously pushing up costs. That said, the picture is not uniform: a number of economies—notably the US, China and India—have seen growth upgrades, reflecting stronger-than-expected momentum so far in 2026. By contrast, the UK stands out at the stagflationary extreme, combining one of the largest growth downgrades with a relatively strong inflation uplift—consistent with its weaker underlying momentum, greater energy sensitivity and more persistent domestic inflation dynamics. More broadly, while the global revisions remain modest—pointing to resilience in activity—the message is that disinflation is no longer a smooth glide back to target but increasingly contingent on energy prices and geopolitical developments.

260423Z1.jpg

**Markets largely shrug off rising economic pessimism**
Notwithstanding a more downbeat assessment from economists—including the IMF’s stagflationary tilt to the outlook—there has been remarkably little follow-through into financial markets. Measures of systemic stress in both the US and UK remain low by historical standards, suggesting that investors are, for now, largely looking through the Middle East conflict. There are several possible explanations: corporate profits remain resilient, the AI-driven investment narrative continues to dominate market thinking, and markets may be assuming that any energy shock will be temporary and contained. In effect, investors appear to be pricing a benign baseline in which geopolitical risks do not materially disrupt growth, inflation expectations or policy. The UK is a partial exception, with a somewhat more visible uptick in stress, which aligns more closely with the IMF’s more challenging growth-inflation trade-off and the economy’s greater sensitivity to energy prices.

260423Z2.jpg

**Volatility falls despite deteriorating growth surprises**
Market optimism is also increasingly at odds with the incoming data flow. Typically, equity volatility declines when growth surprises are positive and inflation surprises are benign. However, the recent pattern has broken that relationship. Growth surprises across the G10 have turned increasingly negative (our series is inverted in the chart below), yet volatility has continued to fall. In other words, markets are becoming less sensitive to weakening macro data, continuing to price a benign outlook even as the data deteriorate. This divergence reinforces the broader theme: investors are, for now, looking through both geopolitical risks and softer economic momentum, placing greater weight on resilience in earnings, the AI-driven narrative and the assumption that policy will remain supportive.

260423Z3.jpg

**Inflation Nowcasts Have Jumped**
Incoming data suggest that headline inflation has moved higher in recent weeks, broadly in line with expectations given the rise in energy prices following the Middle East shock. Nowcasts for CPI across the major economies show a clear rebound in March and April from the lows seen at the start of 2026, with the move occurring in a relatively synchronised fashion. This reinforces the view that the recent pickup in inflation is being driven primarily by a common external factor—energy.

260423Z4.jpg

**Energy shock not yet feeding into underlying inflation**
However, the detailed breakdown of March inflation outcomes suggests that this remains, for now, a largely headline-driven phenomenon. While headline CPI prints were firm across most economies, core inflation—stripping out energy and food—was more subdued and in some cases weaker. This indicates that there has been very limited pass-through from higher energy prices into broader goods and services inflation at this early stage. In other words, the shock is still being absorbed rather than propagated. That distinction is critical for policy and markets alike: as long as second-round effects remain contained, central banks may be able to look through the near-term rise in inflation, even as headline rates move higher.

260423Z5.jpg

**Inflation Expectations Rising as Growth Sentiment Falters**
It remains early days, and much will hinge on how inflation expectations evolve from here. The latest ZEW survey for Germany already conveys the hallmarks of a classic stagflationary shock, with macroeconomic expectations weakening even as inflation expectations have ratcheted sharply higher. This shift is important: while the recent rise in headline inflation has so far shown limited pass-through into core, a sustained increase in expectations would raise the risk of second-round effects and make the inflation process more persistent. In that sense, the ZEW data highlight the key fault line in the current environment—whether the energy-driven shock remains contained, or begins to embed itself more broadly through expectations and pricing behaviour.

260423Z6.jpg

Financial markets have remained notably calm in recent weeks despite rising geopolitical tensions in the Middle East, a more downbeat macroeconomic narrative and elevated uncertainty. Measures of financial stress and volatility remain low, and equity markets continue to look through both the conflict and softer data. That resilience sits alongside a more nuanced macro backdrop. The IMF’s latest WEO revisions point to a classic stagflationary energy shock—growth downgraded and inflation revised higher—although the global impact remains modest and uneven, with some economies still benefiting from stronger momentum (chart 1). At the same time, market pricing appears increasingly detached from the data flow, with volatility declining even as growth surprises have turned more negative relative to inflation (charts 2 and 3). Incoming inflation data reinforce the idea of a largely headline-driven shock, with nowcasts rising in line with higher energy prices but only limited pass-through into core inflation so far (charts 4 and 5). However, it remains early days. Survey evidence, such as the latest ZEW release, suggests that inflation expectations may already be responding in a more concerning way, with a marked rise alongside weakening growth sentiment (chart 6). Taken together, the key question for markets is whether this remains a contained, energy-driven shock that can be looked through—or whether it begins to embed more persistently via expectations, forcing a reassessment of the currently benign outlook.

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Charts of the Week: Risks Build, Markets Shrug

Sandy Batten

260423F8.jpg

260423G8.jpg

The National Activity Index published by the Federal Reserve Bank of Chicago (CFNAI) slipped to -0.20 in March from an upwardly revised +0.03 in February (previously (-0.11). This is the lowest monthly reading since last November. Smoothing out the monthly volatility, the index's three-month moving average (CFNAI-MA3) declined to -0.03 in March from an upwardly revised +0.03 in February (previously -0.01).

This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the FRB Chicago indicates that readings on the 3-month average of -0.70 or below are consistent with the economy being in a recession. Therefore, even though the March reading on the 3-month average was negative, it indicates that the US economy is still growing, just slightly slower than trend, and is well away from recessionary conditions. The 3-month average would be much deeper in negative territory if the economy was at risk of contracting.

The National Activity Index is a composite of 85 economic indicators, grouped into four major categories: production and income; employment, unemployment, and hours worked; personal consumption and housing; sales, orders, and inventories. Three of the four broad categories of indicators used to construct the index decreased from February, and three categories made negative contributions in March. Production-related indicators contributed –0.20 to the CFNAI in March, down from +0.13 in February. The sales, orders, and inventories category's contribution to the CFNAI was –0.01 in March, down from +0.05 in February. Employment-related indicators contributed +0.02 to the CFNAI in March, up from –0.15 in February. The personal consumption and housing category's contribution to the CFNAI was –0.01 in March, down from a neutral value in February.

The CFNAI Diffusion Index, which measures the breadth of the change in the component series and is also a three-month moving average, increased to –0.04 in March from –0.08 in February. This is the highest reading since February 2025. A reading of zero indicates that all of the indicators are growing at their long-term average. If all of the underlying indicators in a given month are below their long-run averages, the diffusion index will equal -1. If all of the indicators are above their long-run averages, it will equal +1. Thirty-four of the 85 individual indicators made positive contributions to the CFNAI in March, while 51 made negative contributions. Forty-three indicators improved from February to March, while 40 indicators deteriorated and two were unchanged. Of the indicators that improved, 16 made negative contributions.

These figures are available in Haver's **SURVEYS** database.

- The monthly reading fell to -0.20 in March from an upwardly revised +0.03 in February.
- The three-month average slipped from +0.03 to -0.03.
- Despite the slip in March, the index points to near-trend economic growth and is well above recession territory.

Chicago Fed National Activity Index Slipped in March

Kathleen Stephansen, CBE

260423A1.jpg

260423B1.jpg

Initial claims for unemployment insurance rose by 6,000 to 214,000 in the week ending April 18, from 208,000 in the week ending April 11, revised from 207,000. The four-week average rose 750 to 210,750 in the week ending April 18, from 210,000 the April 11 week, revised from 209,750. The Action Economics/Haver Analytics Survey looked for 210,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 12,000 to 1.821 million in the week ending April 11, from 1.809 million in the week ending April 4. The four-week moving average rose to 1.812 million in the latest week from 1.811 million in the March 28 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 4, the highest unemployment rates were in New Jersey (2.51%), Massachusetts (2.37%), Rhode Island (2.31%), Washington (2.25%), Minnesota (2.11%), and California (2.02%). The lowest rates were in Florida (0.30%), Louisiana (0.31%), Arkansas (0.35%), Alabama (0.36%), North Carolina (0.39%), Tennessee (0.46%), South Dakota (0.47%), Kansas and Virginia (both 0.49%). Rates in other notable states include New York (1.92%), Illinois (1.82%), Pennsylvania (1.52%), and Texas (1.04%). 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.

260423C1.jpg

260423D1.jpg

- New claims rose by 6,000 to 214,000.
- Continuing claims rose by 12,000 to 1.821 million.
- The insured unemployment rate remained at 1.2%.


Economy in Brief: 2010

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