Robert Brusca

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The estimate for German confidence in April is lower than in March by just 0.1 point, its smallest unit of measurement. The index has a 94 queue or count percentile standing which means it has been higher only above 6% of the time, an impressively strong reading. However, all is not terrific in Germany. The reading for economic expectations, which lags by one month, fell to 0.5 in March from 3.4 in February and sits in the bottom 40% of its historic queue. Income expectations fell to 50.5 from 56.7 and now reside in the 92nd percentile of their historic queue. Clearly income generation is still in train and German respondents see it and are comforted by it. But there is concern about the economy which has not yet manifested any labor market, or apparently, income-generation concerns. The economy is a vague sort of concept not directly attached to welfare considerations or so it seems here. Still, the propensity to buy reading slipped to 50 from 52.7 and resides in its 87th percentile and is stronger only about 13% of the time. That also is a strong and solid reading.

Germans feeling good and running the show

Germans continue to feel good and to be confident. The GfK reading has been at 9.3 or above since February 2015. This is a collection of unprecedentedly high confidence readings since January 2002 when this survey began. The Germans seem to understand that they have the EMU situation at their beck and call. Despite the monthly ups and downs, German values are running the show.

Problems percolate, then are walled off

Still there are problems percolating in Germany and in Europe. Angela Merkel's party lost support in the last regional elections largely because of disagreement over her policy of taking in migrants. The recent terror attack in Belgium may shake that foundation further. However, the shutting of the border by Macedonia has made the issue of migrant sheltering moot for Germany since migrants no longer can travel there. The way is shut. This shutdown is described by some as an action by peripheral countries, but it certainly does shelter the core of the euro area from incursions by migrants and it has bottled up the problem in Greece, a country with diminished resources that has been left to deal with this expensive growing piled-up of humanity. That may have been solved by a recent agreement by the EU to ship migrants off to Turkey and to pay Turkey some six billion euros for their trouble and by an additional EU agreement to help Greece with its costs as well.

To each his own; from each his own?

Separately, Greece has been vetted for its next tranche of funds under its ongoing austerity program and the German viewpoint was that the Greece should be given no slack or special consideration for the monies it had to expend in housing and caring for migrants. That was big of them, wasn't it? I have mentioned here before that the Danish people were, in a very recent survey, deemed the happiest people in the world, but to be a migrant there, to join the `happiness' and accept aid, you will have your worldly goods confiscated by the government. When we evaluate consumer confidence, we must account for local preferences and the kinds of things that do and do not weigh on a consumer's conscience. Angela Merkel seems to worry a bit more about Europe than does the average German consumer or Dane. Italians seem to worry about next to nothing.

Europe's confidence game

Elsewhere in Europe, the consumer confidence measures are lagging the early release by GfK. French, Italian and U.K. confidence measures all are up to date only through February and none stand so strongly relative to their own respective histories- except Italy. February finds each of these measures on a down tick with Italy's reading still strong in the top 3% of its historic queue, the U.K. in its top 13% and France with a less ebullient standing only in the 60th percentile of its historic queue of data. When it comes to confidence, Germany is generally doing better than anyone. The strong reading in Italy is a bit hard to understand since Italy's economic performance is surely not up to supporting that sort of reading. Confidence in Italy is a statement about happiness disconnected from economic wellbeing.

Europe's challenges the German policy `Caliphate'

But Europe faces all sorts of challenges. Countries like Spain are still bottled up in austerity programs that are very unpopular. France has simply asserted its right to take more time to get its budget under control. Italy and Portugal have budget issues. Greece is an ongoing and well-known problem; yet, Germany just yesterday adopted fiscal spending goals and set a budget path consistent with budget balance through 2020. Germany is in the fiscal cat-bird's seat. With its finances in order, Germany is in a position to add fiscal stimulus to an area in great need of it but instead has chosen to dictate to others. Still, the German policy `caliphate' (also known as EMU) has not performed well. German unemployment is low (scary-record low!), but unemployment is higher everywhere else in the EMU. Austerity has put fiscal policy off limits. The ECB's just under 2% price target has not been able to be met and extensive monetary stretching has been unable to get inflation back on track or anywhere close to on track. Despite inflation being below target since February 2013 and despite the ECB having a single policy mandate (inflation!), the Germans have persistently opposed any action to boost it back to target always more worried that the sanctity of the ECB's rules was being violated. Instead it is the ECB's performance that has been constantly violating its mandate and now its credibility is shattered too.

Everywhere in Europe is like living in Germany! Well, in terms of the policy agenda

But these circumstances have favored Germany. The impact of weak growth and inflation in the EMU have pushed the euro exchange rate lower and boosted further German competitiveness -adding to the air of well-being in Germany. This has given German firms time to retool and deal with the ongoing industrial technology revolution. Germany also has an economy geared to run on low inflation and has an economic structure already streamlined and optimized for it. The rest of Europe was caught out of equilibrium and getting back to an equilibrium (a German equilibrium) supported by the Germans has proved (not surprisingly) painful. Some have never been there before since the EMU region has only one exchange rate and there are no more country level freelance depreciations. EMU nations are all locked together and have had very different national inflation performances as their respective legacies. That means that vis-a-vis Germany they have lost ground compared to the starting position in the EMU. Each of the original EMU member countries has lost competitiveness with Germany since the euro was launched. Only Germany and France have averaged a price level rise less than the (weighted) aggregate for the EMU as a whole since EMU was begun- and France still trails Germany in that regard. Since the EMU was formed, inflation differentials vs. Germany have ranged from 2.5% (vs. France) to 18.9% (vs. Luxembourg). These differentials represent losses in competiveness vs. Germany. Germany has gained 16.9% vs. Spain, 13.8% vs. Ireland, 13.1% vs. Portugal, and 10.9% vs. Italy. Currently countries wishing to make gains in competiveness vs. Germany need to run national inflation rates below the -0.2% pace Germany currently is running. That's right; right now it takes a policy of outright deflation to gain on German competitiveness judging from the German HICP.

Play EMU...the German game

So this is the game Germany plays in Europe. Germany is off to a huge lead by having kept inflation so much lower. France has been smart to tag along and does not trail by much despite its ongoing budget issues. France has kept budgetary excess from whacking its price level too badly. But the rest of Europe is in a German pickle, or maybe vat of sauerkraut. The fixed exchange rate keeps everyone tied to the German game with the Germans in the lead. There is no escape for Europe. They have no choice but to play along or to leave. Despite stresses, no one really wants to leave. But to stay will continue to be painful since Germany is still playing for keeps: balancing its budget and with a falling price level. Catching Germany will not be painless. It looks harder than catching Secretariat at the Belmont stakes. The Italians are not exactly prospering, but judging from their confidence reading, they have learned to live with the pain much more than they have acceded to adjust their economic policies. I wonder how long that can last? And if it does not last, then what?


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The estimate for German confidence in April is lower than in March by just 0.1 point, its smallest unit of measurement. The index has a 94 queue or count percentile standing which means it has been higher only above 6% of the time, an [...]

German Confidence Ticks Off Its Highs Ever So Slightly; Most of the Rest of EMU Tags Along Behind

Tom Moeller

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New orders for durable goods declined 2.8% (+1.8% y/y) during February following a 4.2% January
rise, revised from 4.9%. A 2.4% decline had been expected in the Action
Economics Forecast Survey.

A 6.2% drop (+7.1% y/y) in orders for transportation equipment led the
overall decline. It was paced by a 27.7% shortfall (-3.6% y/y) in aircraft
orders which followed a 59.4% jump. Motor vehicle &amp; parts bookings gained
1.2% (11.8% y/y) after a 2.7% rise.

Orders for nondefense capital goods declined 7.5% (-3.7% y/y) following a
20.5% rise. Bookings excluding aircraft fell 1.8% (-0.1% y/y) after a 3.1% rise.

Machinery orders fell 2.6% (-0.9% y/y) following a 4.6% jump. Computers &amp;
electronic product orders were off 0.9% (+6.9% y/y), reversing a 0.9% increase.
Electrical equipment orders fell 2.8% (-7.3% y/y), down for a second consecutive
month. Fabricated metals orders declined 1.2% (+1.4% y/y), but primary metals
orders eased just 0.1% (-11.9% y/y).

Shipments of durable goods declined 0.9% (+0.5% y/y) following a 1.5% rise.
Shipments excluding transportation fell 0.7% (-2.0% y/y). Order backlogs of
durable goods fell 0.4% (-1.6% y/y) and less transportation they eased 0.4%
(-1.6% y/y). Durable goods inventories fell 0.3% (-1.6% y/y), and excluding
transportation they also were off 0.3% (-2.9% y/y.

The durable goods figures are available in Haver's USECON
database. The Action Economics consensus forecast figure is in the AS1REPNA database.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Durable Goods
 NAICS Classification</th>
 <th>Feb</th>
 <th>Jan</th>
 <th>Dec</th>
 <th>Feb Y/Y</th>
 <th>2015</th>
 <th>2014</th>
 <th>2013</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >New Orders (SA, %)</td>
 <td >-2.8</td>
 <td >4.2</td>
 <td >-4.6</td>
 <td >1.8</td>
 <td >-3.3</td>
 <td >6.8</td>
 <td >2.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Transportation</td>
 <td >-6.2</td>
 <td >10.7</td>
 <td >-12.2</td>
 <td >7.1</td>
 <td >-4.8</td>
 <td >6.1</td>
 <td >6.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Total Excluding
 Transportation</td>
 <td >-1.0</td>
 <td >1.2</td>
 <td >-0.7</td>
 <td >-0.5</td>
 <td >-2.5</td>
 <td >7.2</td>
 <td >0.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Nondefense Capital
 Goods</td>
 <td >-7.5</td>
 <td >20.5</td>
 <td >-14.0</td>
 <td >-3.7</td>
 <td >-10.2</td>
 <td >6.6</td>
 <td >2.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp;
 Excluding Aircraft</td>
 <td >-1.8</td>
 <td >3.1</td>
 <td >-3.5</td>
 <td >-0.1</td>
 <td >-3.7</td>
 <td >6.3</td>
 <td >-1.0</td>
 </tr>
 <tr>
 <td class="firstcol" >Shipments</td>
 <td >-0.9</td>
 <td >1.5</td>
 <td >-1.8</td>
 <td >0.5</td>
 <td >1.6</td>
 <td >4.8</td>
 <td >2.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Inventories</td>
 <td >-0.3</td>
 <td >-0.2</td>
 <td >0.2</td>
 <td >-1.6</td>
 <td >-0.4</td>
 <td >6.1</td>
 <td >2.4</td>
 </tr>
 <tr>
 <td class="firstcol" >Unfilled Orders</td>
 <td >-0.4</td>
 <td >0.0</td>
 <td >-0.5</td>
 <td >-1.6</td>
 <td >-1.9</td>
 <td >11.4</td>
 <td >6.4</td>
 </tr>
 </tbody>
 </table>
 
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New orders for durable goods declined 2.8% (+1.8% y/y) during February following a 4.2% January rise, revised from 4.9%. A 2.4% decline had been expected in the Action Economics Forecast Survey. A 6.2% drop (+7.1% y/y) in orders for [...]

U.S. Durable Goods Orders Decline; Capital Goods Backpedal

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Factory sector activity is gaining strength. New orders for
durable goods recovered 4.9% during January (1.8% y/y) following a 4.6% December
decline, revised from -5.1%. A 2.4% increase had been expected in the Action
Economics Forecast Survey.
An 11.5% surge (6.7% y/y) in transportation sector orders led
the recovery, as it made up a 12.1% decline. Nondefense aircraft orders surged
by 54.2% (5.2% y/y) following sharp declines in the prior two months. Defense
aircraft orders also jumped 84.8% (22 .6% y/y) and motor vehicle orders gained
3.0% (10.7% y/y). Outside of the transportation sector, orders advanced 1.8%
(-0.6% y/y) and made up declines in the prior two months.
Machinery orders jumped 6.9% (0.4% y/y) and recouped losses
during November &amp; December. Orders for electrical equipment increased 1.1%
(-0.7% y/y), strong for the third straight month. Computer &amp; electronic
product orders gained 0.8% (7.0% y/y) after a 1.9% decline. Computer &amp;
related product orders jumped 6.4%, but they were down 8.9% y/y. Communications
equipment bookings recovered 9.6% (-4.1% y/y) following a 17.4% drop. Fabricated
metals orders increased 1.6% (-0.2% y/y) and primary metal orders gained 0.7%
(-14.4% y/y).
Shipments of durable goods increased 1.9% (0.9% y/y) following
a 1.6% drop. Outside of transportation, shipments edged 0.2% higher, but were
down 0.9% y/y. Unfilled orders ticked 0.1% higher (-1.8% y/y) following a 0.5%
fall. Outside of transportation backlogs rose 0.2% (-2.0% y/y). Durable goods
inventories eased 0.1% (-0.8% y/y). Outside of transportation, inventories
dropped 0.4% (-2.4% y/y), and they've been declining steadily since May.
The durable goods figures are available in Haver's USECON
database. The Action Economics consensus forecast figure is in the AS1REPNA
database.
<table width="1788" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="866">Durable Goods
 NAICS Classification</th>
 <th width="131">Feb</th>
 <th width="131">Jan</th>
 <th width="131">Dec</th>
 <th width="131">Feb Y/Y</th>
 <th width="131">2015</th>
 <th width="131">2014</th>
 <th width="132">2013</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" width="866">New Orders (SA, %)</td>
 <td align="center" width="131"></td>
 <td align="center" width="131">4.9</td>
 <td align="center" width="131">-4.6</td>
 <td align="center" width="131">1.8</td>
 <td align="center" width="131">-3.3</td>
 <td align="center" width="131">6.8</td>
 <td align="center" width="132">2.2</td>
 </tr>
 <tr>
 <td class="firstcol" width="866">&nbsp; Transportation</td>
 <td align="center" width="131"></td>
 <td align="center" width="131">11.5</td>
 <td align="center" width="131">-12.1</td>
 <td align="center" width="131">6.7</td>
 <td align="center" width="131">-4.8</td>
 <td align="center" width="131">6.1</td>
 <td align="center" width="132">6.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="866">Total Excluding
 Transportation</td>
 <td align="center" width="131"></td>
 <td align="center" width="131">1.8</td>
 <td align="center" width="131">-0.7</td>
 <td align="center" width="131">-0.6</td>
 <td align="center" width="131">-2.5</td>
 <td align="center" width="131">7.2</td>
 <td align="center" width="132">0.1</td>
 </tr>
 <tr>
 <td class="firstcol" width="866">&nbsp; Nondefense Capital
 Goods</td>
 <td align="center" width="131"></td>
 <td align="center" width="131">21.6</td>
 <td align="center" width="131">-14.1</td>
 <td align="center" width="131">-1.5</td>
 <td align="center" width="131">-10.2</td>
 <td align="center" width="131">6.6</td>
 <td align="center" width="132">2.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="866">&nbsp;&nbsp;&nbsp;
 Excluding Aircraft</td>
 <td align="center" width="131"></td>
 <td align="center" width="131">3.9</td>
 <td align="center" width="131">-3.7</td>
 <td align="center" width="131">-2.8</td>
 <td align="center" width="131">-3.7</td>
 <td align="center" width="131">6.3</td>
 <td align="center" width="132">-1.0</td>
 </tr>
 <tr>
 <td class="firstcol" width="866">Shipments</td>
 <td align="center" width="131"></td>
 <td align="center" width="131">1.9</td>
 <td align="center" width="131">-1.6</td>
 <td align="center" width="131">0.9</td>
 <td align="center" width="131">1.6</td>
 <td align="center" width="131">4.8</td>
 <td align="center" width="132">2.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="866">Inventories</td>
 <td align="center" width="131"></td>
 <td align="center" width="131">-0.1</td>
 <td align="center" width="131">0.2</td>
 <td align="center" width="131">-0.8</td>
 <td align="center" width="131">-0.4</td>
 <td align="center" width="131">6.1</td>
 <td align="center" width="132">2.4</td>
 </tr>
 <tr>
 <td class="firstcol" width="866">Unfilled Orders</td>
 <td align="center" width="131"></td>
 <td align="center" width="131">0.1</td>
 <td align="center" width="131">-0.5</td>
 <td align="center" width="131">-1.8</td>
 <td align="center" width="131">-1.9</td>
 <td align="center" width="131">11.4</td>
 <td align="center" width="132">6.4</td>
 </tr>
 </tbody>
</table>


&nbsp;
U.S. Initial Unemployment Insurance
Claims Rise Modestly 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;March
24, 2016
Initial unemployment insurance claims increased to an expected
265,000 during the week ended March 12 from 258,000 in the prior week, revised
from 259,000. The expectations figure is from the Action Economics Forecast
Survey. The four week moving average of claims fell to 268,000, the lowest point
since October.
The latest initial claims figure covers the survey period for
March nonfarm payrolls, and there was a 3,000 increase (1.1%) from the February
period. During the last ten years, there has been a 75% correlation between the
level of initial claims and the m/m change in payroll employment.
In the week ending March 5, continuing claims for unemployment
insurance rose slightly to 2.235 million (-6.8% y/y) from 2.227 million. The
four-week moving average fell to 2.243 million.
The insured rate of unemployment remained at 1.6%, the low
point of the economic recovery.
Insured rates of unemployment across states continued to vary.
Near the low end of the range were Florida (0.63%), North Carolina (0.74%),
Georgia (0.85%), Virginia (0.99%), Arizona (1.03%) and Tennessee (1.05%). At the
high end of the scale were Illinois (2.77%), Massachusetts (2.86%), Connecticut
(3.03%), Pennsylvania (3.24%), New Jersey (3.29%) and Alaska (4.52%). The state
data are not seasonally adjusted and cover the week ended January 16.
Data on weekly unemployment insurance are contained in Haver's
WEEKLY database and they are summarized monthly in USECON. Data for
individual states are in REGIONW. The expectations figure is from the
Action Economics survey, carried in the AS1REPNA database.
<table width="1788" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" 0801 width="662">Unemployment
 Insurance (000s)</th>
 <th 0801 width="160">03/19/16</th>
 <th 0801 width="160">03/12/16</th>
 <th 0801 width="160">03/05/16</th>
 <th 0801 width="160">Y/Y</th>
 <th 0801 width="160">2015</th>
 <th 0801 width="161">2014</th>
 <th 0801 width="161">2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" 0801 width="662">Initial Claims</td>
 <td 0801 align="center" width="160"></td>
 <td 0801 align="center" width="160">265</td>
 <td 0801 align="center" width="160">258</td>
 <td 0801 align="center" width="160">-8.8%</td>
 <td 0801 align="center" width="160">277</td>
 <td 0801 align="center" width="161">307</td>
 <td 0801 align="center" width="161">342</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" 0801 width="662">Continuing Claims</td>
 <td 0801 align="center" width="160"></td>
 <td 0801 align="center" width="160">--</td>
 <td 0801 align="center" width="160">2,235</td>
 <td 0801 align="center" width="160">-6.8</td>
 <td 0801 align="center" width="160">2,268</td>
 <td 0801 align="center" width="161">2,607</td>
 <td 0801 align="center" width="161">2,978</td>
 </tr>
 <tr>
 <td class="firstcol" 0801 width="662">Insured Unemployment
 Rate (%)</td>
 <td 0801 align="center" width="160"></td>
 <td 0801 align="center" width="160">--</td>
 <td 0801 align="center" width="160">1.6</td>
 <td 0801 align="center" width="160">
 1.8 
 (Mar. 2015)
 </td>
 <td 0801 align="center" width="160">1.7</td>
 <td 0801 align="center" width="161">2.0</td>
 <td 0801 align="center" width="161">2.3</td>
 </tr>
 </tbody>
</table>


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Factory sector activity is gaining strength. New orders for durable goods recovered 4.9% during January (1.8% y/y) following a 4.6% December decline, revised from -5.1%. A 2.4% increase had been expected in the Action Economics [...]

U.S. Durable Goods Orders Rebound; Capital Goods Surge

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The Mortgage Bankers Association reported that its total Mortgage Market
Volume Index declined 3.3% last week (+6.4% y/y), the same as during the prior
week. Purchase applications fell 1.0% (+25.3% y/y) after a 0.3% uptick,
while refinancing applications dropped 4.9% (-4.5% y/y), the fifth consecutive
week of sharp decline.

The effective interest rate on a 15-year mortgage held steady at 3.3%, and
remained down from the 3.5% highs of November and December. The effective rate on a 30-year
fixed-rate loan of 4.0% also was lower versus 4.3% near year-end. The rate on a
Jumbo 30-year loan similarly remained down at 3.9%. For adjustable 5-year
mortgages, the effective interest rate held steady at 3.3%, and equaled the
November/December levels.

The average mortgage loan size eased to $276,400 (+0.1% y/y), down from last
month's $298,000 average. For purchases it rose to $305,000 (4.0% y/y), but for
refinancings it fell to $251,900 (-4.8% y/y).

Applications for fixed interest rate loans increased 7.5% y/y while
adjustable-rate loan applications declined 10.3% y/y.

The survey covers over 75 percent of all U.S. retail residential mortgage
applications, and has been conducted weekly since 1990. Respondents include
mortgage bankers, commercial banks and thrifts. The base period and value for
all indexes is March 16, 1990=100. The figures for weekly mortgage applications
and interest rates are available in Haver's SURVEYW database.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >MBA Mortgage Applications
 (SA, 3/16/90=100)</th>
 <th scope="col" >03/18/16</th>
 <th scope="col" >03/11/16</th>
 <th scope="col" >03/04/16</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Total Market Index</td>
 <td >-3.3</td>
 <td >-3.3</td>
 <td >0.2</td>
 <td >6.4</td>
 <td >17.9</td>
 <td >-41.4</td>
 <td >-24.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Purchase</td>
 <td >-1.0</td>
 <td >0.3</td>
 <td >4.2</td>
 <td >25.3</td>
 <td >15.5</td>
 <td >-12.9</td>
 <td >5.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Refinancing</td>
 <td >-4.9</td>
 <td >-5.6</td>
 <td >-2.3</td>
 <td >-4.5</td>
 <td >19.7</td>
 <td >-52.8</td>
 <td >-31.9</td>
 </tr>
 <tr>
 <td class="firstcol" >15-Year Mortgage Effective Interest Rate
 (%)</td>
 <td >3.27</td>
 <td >3.31</td>
 <td >3.24</td>
 <td >3.31</td>
 <td >3.37</td>
 <td >3.54</td>
 <td >3.42</td>
 </tr>
	 </tbody>
	 </table>
	 
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The Mortgage Bankers Association reported that its total Mortgage Market Volume Index declined 3.3% last week (+6.4% y/y), the same as during the prior week. Purchase applications fell 1.0% (+25.3% y/y) after a 0.3% uptick, while [...]

U.S. Mortgage Loan Applications Tumble

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Sales of new single-family homes increased 2.0% to 512,000 (SAAR, -6.1% y/y)
during February after a 7.0% decline to 502,000 in January, revised from
494,000. Sales of 510,000 had been expected in the Action Economics Forecast Survey.

The median price of a new home rebounded 6.2% (2.6% y/y) to $301,400 after
January's decline to $283,900, revised from $278,800. The average sales price
declined 4.0% m/m to $348,900 (-2.0% y/y).

By region, there was considerable variation in sales m/m. Home sales in the
West jumped 38.5% (10.2% y/y) to 151,000 following January's 32.7% decline. To
the downside, sales in the Northeast declined 24.2% (-3.8% y/y) to 25,000, and
reversed most of the prior month's gain. Sales in the Midwest fell 17.9% (+1.9%
y/y) to 55,000 after a 4.3% decline. In the South, sales fell 4.1% (-14.3% y/y) to
281,000, negating January's improvement.

The inventory of unsold homes increased 17.6% y/y and there was a 5.6 months
supply at the current sales rate. That figure was up from a low of 4.0
months in January 2013. The number of months a new home was on the market
increased slightly to 3.8 months.

The data in this report are available in Haver's USECON database. The
consensus expectation figure from the Action Economics Forecast Survey is
available in the AS1REPNA database.

Job Gains Remain Strong, Inflation Improves from the Federal Reserve
Bank of Dallas can be found <a href="http://www.dallasfed.org/research/update/us/2016/1602.cfm">here</a>.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >U.S. New Single-Family
 Home Sales (SAAR, 000s)</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >512</td>
 <td >502</td>
 <td >540</td>
 <td >-6.1</td>
 <td >503</td>
 <td >440</td>
 <td >430</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Northeast</td>
 <td >25</td>
 <td >33</td>
 <td >28</td>
 <td >-3.8</td>
 <td >24</td>
 <td >28</td>
 <td >31</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Midwest</td>
 <td >55</td>
 <td >67</td>
 <td >70</td>
 <td >1.9</td>
 <td >61</td>
 <td >58</td>
 <td >61</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; South</td>
 <td >281</td>
 <td >293</td>
 <td >280</td>
 <td >-14.3</td>
 <td >287</td>
 <td >244</td>
 <td >233</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; West</td>
 <td >151</td>
 <td >109</td>
 <td >162</td>
 <td >10.2</td>
 <td >131</td>
 <td >110</td>
 <td >106</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Median Price (NSA, $)</td>
 <td >301,400</td>
 <td >283,900</td>
 <td >297,000</td>
 <td >2.6</td>
 <td >294,575</td>
 <td >283,775</td>
 <td >265,092</td>
 </tr>
 </tbody>
 </table>
 
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Sales of new single-family homes increased 2.0% to 512,000 (SAAR, -6.1% y/y) during February after a 7.0% decline to 502,000 in January, revised from 494,000. Sales of 510,000 had been expected in the Action Economics Forecast Survey. [...]

U.S. New Home Sales & Prices Improve

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Spanish price trends point lower in February. Spain's PPI prices fell year-over-year for overall producer prices led by a drop in intermediate goods prices. Consumer goods barely ticked higher over 12 months (0.2%) while investment goods prices rose by 0.8%. However, the progressive behavior of prices over shorter periods shows that all price trends weaken over shorter horizons. Overall PPI, consumer goods and intermediate goods prices are falling over three months and investment goods marking an annualized rate of increase of just 0.4%. The monthly data confirm these trends with price drops becoming more common in February than in January and in January vs. December by industry group. Intermediate goods price weakness leads the sectors lower with oil and commodities prices as the main drivers there.

In Spain, the headline and intermediate prices are lower year-over-year as well as for year-over-year one year ago and two years ago. There is a deep legacy of price declines that could affect expectations in Spain and make it harder for the ECB to turn things around. Spain is not alone in the EMU in suffering through such prices weakness. The political party, Podemos, has been gaining popularity and wants to take Spain off the existing austerity program that is contributing to ongoing price declines in Spain and limiting the use of fiscal policy (preventing it). Deflation has been in train for so long; it is creating a backlash. And that is one of the problems with such strident use of austerity. It only works when it is in place. Yet, its use can create a powerful backlash. And if austerity is dismantled, usually that is done with an aggressive overthrow of its application and results in a complete undoing of the progress made while it was in effect, rendering the past sacrifice worthless. German-style austerity is a high-risk approach to restore fiscal balance and price stability. We see all these forces in play in Spain.

And we can see that much of Spain's price weakness is homegrown. We present export and import prices which show for both year-on-year price declines by split export and import results for year-ago prices. Domestic prices have been more persistently weak than have been export and import prices. Spanish export prices have been stronger than the PPI in recent years and stronger than import prices leading to a rise in the terms of trade. Competitiveness has been maintained by a weakening exchange rate. That has been an aid to Spain's ability to earn foreign exchange and in the trade of goods. A rising terms of trade ratio means that a nation is being paid more for its exports than it has been paying for its imports compared to the past. That helps to boost its welfare.

Still, Spain has been under enormous political pressures although real retail spending has been on the mend and Spanish GDP has been posting consistent gains. Despite its successes, Spain is still a country beset with political tensions amid ongoing economic progress and slow-mending high unemployment. The ECB's inability to get enough growth in gear using tradition then unconventional monetary tools has been disappointing. Monetary policy is at a near standstill in combating the depressing effect of austerity. Inflation is under control or too weak. Growth has been put in gear more readily than has unemployment reduction and those facts remain a sticking point in Spain.


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Spanish price trends point lower in February. Spain's PPI prices fell year-over-year for overall producer prices led by a drop in intermediate goods prices. Consumer goods barely ticked higher over 12 months (0.2%) while investment [...]

Spanish Price Trends

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The Mortgage Bankers Association reported that its total Mortgage Market
Volume Index declined 3.3% last week (+6.4% y/y), the same as during the prior
week. Purchase applications fell 1.0% (+25.3% y/y) after a 0.3% uptick,
while refinancing applications dropped 4.9% (-4.5% y/y), the fifth consecutive
week of sharp decline.

The effective interest rate on a 15-year mortgage held steady at 3.3%, and
remained down from the 3.5% highs of November and December. The effective rate on a 30-year
fixed-rate loan of 4.0% also was lower versus 4.3% near year-end. The rate on a
Jumbo 30-year loan similarly remained down at 3.9%. For adjustable 5-year
mortgages the effective interest rate held steady at 3.3%, and equaled the
November-December levels.

The average mortgage loan size eased to $276,400 (+0.1% y/y), down from last
month's $298,000 average. For purchases it rose to $305,000 (4.0% y/y), but for
refinancings it fell to $251,900 (-4.8% y/y).

Applications for fixed interest rate loans increased 7.5% y/y while
adjustable-rate loan applications declined 10.3% y/y.

The survey covers over 75 percent of all U.S. retail residential mortgage
applications, and has been conducted weekly since 1990. Respondents include
mortgage bankers, commercial banks and thrifts. The base period and value for
all indexes is March 16, 1990=100. The figures for weekly mortgage applications
and interest rates are available in Haver's SURVEYW database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >MBA Mortgage Applications
 (SA, 3/16/90=100)</th>
 <th scope="col" >03/18/16</th>
 <th scope="col" >03/11/16</th>
 <th scope="col" >03/04/16</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Total Market Index</td>
 <td >-3.3</td>
 <td >-3.3</td>
 <td >0.2</td>
 <td >6.4</td>
 <td >17.9</td>
 <td >-41.4</td>
 <td >-24.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Purchase</td>
 <td >-1.0</td>
 <td >0.3</td>
 <td >4.2</td>
 <td >25.3</td>
 <td >15.5</td>
 <td >-12.9</td>
 <td >5.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Refinancing</td>
 <td >-4.9</td>
 <td >-5.6</td>
 <td >-2.3</td>
 <td >-4.5</td>
 <td >1,735.2</td>
 <td >1,449.8</td>
 <td >3,070.0</td>
 </tr>
 <tr>
 <td class="firstcol" >15-Year Mortgage Effective Interest Rate
 (%)</td>
 <td >3.27</td>
 <td >3.31</td>
 <td >3.24</td>
 <td >3.31</td>
 <td >3.37</td>
 <td >3.54</td>
 <td >3.42</td>
 </tr>
	 </tbody>
	 </table>
	 
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Regular gasoline prices rose, on average, last week to $2.01 per
gallon (-18.3% y/y) from $1.96 in the prior week. It was the highest price since
mid-January, according to the U.S. Department of Energy. The price compares to a
2014 high of $3.71 per gallon. Haver Analytics constructs factors adjusting for
the seasonal variation in pump prices, and the adjusted price also rose to $2.01
per gallon. The N.Y. spot market gasoline price rose to $1.15 per gallon, up 7
cents from the February low.

WTI crude oil costs increased slightly to $38.32 per barrel last week
(-13.7% y/y) from $37.84 in the prior week. Yesterday, prices jumped to $39.91
per barrel. Prices remained well below the peak of $113.93 in April 2011. Brent
crude oil prices eased w/w to $40.27 per barrel, but recovered to $41.67
yesterday. The price was $27.73 in late January.

Prices for natural gas increased last week to $1.77 per mmbtu (-36.2%
y/y), and were $1.76 yesterday.

Last week, gasoline demand increased 6.4% y/y, while demand for all
petroleum products improved 1.9% y/y. Gasoline inventories rose 6.1%
y/y, while inventories of all petroleum products gained 8.5% y/y. Crude oil
production (input to refineries) increased 3.8% y/y during the last four weeks.

The energy price data are reported by the U.S. Department of Energy. The
petroleum demand and inventory figures are from the Oil &amp; Gas Journal
Weekly. These data can be found in Haver's WEEKLY database. The daily
figures are in DAILY and greater detail on prices, demand and production,
along with regional breakdowns, are in OILWKLY.

<a href="/comment/160322l_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/160322l.png"></a>
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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy
 Prices</th>
 <th scope="col" >03/21/16</th>
 <th scope="col" >03/14/16</th>
 <th scope="col" >03/07/16</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2015</th>
 <th scope="col" >2014</th>
 <th scope="col" >2013</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Retail Gasoline ($ per
 Gallon, Regular)</td>
 <td >2.01</td>
 <td >1.96</td>
 <td >1.84</td>
 <td >-18.3</td>
 <td >2.03</td>
 <td >2.30</td>
 <td >3.33</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($
 per bbl., WSJ)</td>
 <td >38.32</td>
 <td >37.84</td>
 <td >34.45</td>
 <td >-13.7</td>
 <td >48.90</td>
 <td >93.64</td>
 <td >97.96</td>
 </tr>
 <tr>
 <td class="firstcol" >Natural Gas ($/mmbtu, LA,
 WSJ)</td>
 <td ></td>
 <td >1.61</td>
 <td >1.57</td>
 <td >-41.4</td>
 <td >2.62</td>
 <td >4.37</td>
 <td >3.7</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Regular gasoline prices rose, on average, last week to $2.01 per gallon (-18.3% y/y) from $1.96 in the prior week. It was the highest price since mid-January, according to the U.S. Department of Energy. The price compares to a 2014 [...]

U.S. Gasoline & Crude Oil Prices Increase Again

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

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

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Michael J. Moran

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The Conference Board’s index of Consumer Confidence inched higher in April from an upwardly revised reading in March. The combined changes left the measure 1.1% higher than the preliminary tally in March. Despite the improvement, the index remained in the low end of the range for the current expansion. The index in April totaled 92.8, down from an average of 96.1 in 2025 and an annual cyclical high of 105.4 in 2023.

The Improvement in April reflected a pickup in the expectations component, which rose 1.7%. The current conditions component inched 0.2% lower. Overall views on current conditions slipped despite more favorable assessments of the labor market. The so-called measure of the jobs gap (share of respondents indicating that jobs are plentiful less the share saying that jobs are hard to get) rose 1.4 percentage points higher to 7.5%. The pickup reflected a drop in the share indicating that jobs are hard to get (down 1.5 percentage points to 19.8%). The share indicating that jobs are plentiful eased 0.1 percentage point to 27.3%.

Although expectations improved in April, from a long-term perspective they could be viewed as the more important factor restraining the headline measure of confidence. As shown in the left chart below, the expectations component of confidence shows considerably less volatility than the current conditions component does. The contrasting patterns suggest that individuals realize that the economy will undergo possibly sharp cyclical swings, but they expect conditions at some point to return to an underlying norm.

The current conditions index in the current cycle has indeed dropped noticeably, but it is still above the long run average (123.8 in April versus the average of approximately 108 from 1990 to 2025). The expectations component, as usual, has eased less than the current conditions component, but its shift has pushed the measure to the low end of its long-run range (72.2 in April versus an average of approximately 88).

Interestingly, concern about the labor market seems to be a factor affecting expectations. While current views on the labor market are favorable (plentiful less hard to get jobs gap of 7.5%), Individual are concerned about the future. The survey asks respondents if they expect more jobs or fewer jobs six months hence. The share indicating fewer jobs has moved well into the upper end of the historical range. Such observations in the past were typically seen only during recession (chart, below right). An unfavorable view on interest rates also seems to be playing a role in depressing the expectations component. More than 60% of respondents to the current survey expect higher interest rates 12 months from now.

The results from the Conference Board survey of consumers differ markedly from those of the University of Michigan Survey Research Center. The Michigan results show consumer sentiment at a record low, while the Conference Board index is only slightly below its long-run average. The difference most likely reflects the nature of the questions in the surveys. The Conference Board focuses on business and employment conditions, while Michigan emphasizes personal finances. The focus on finances, along with questions on inflation, probably picks up concerns about affordability.

The Consumer Confidence data are available in Haver’s **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

260428P.jpg

260428Q.jpg

- Expectations improved slightly in April, but are still subdued relative to norms.
- Moderately favorable view of current conditions.

Consumer Confidence: Modest Change in April

Winnie Tapasanun

260428J35.jpg

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U.S. house prices were essentially unchanged m/m in February after rises of 0.2% in January (+0.1% initially) and 0.3% in December (unrevised), according to the Federal Housing Finance Agency (FHFA) House Price Index. February marked the first flat reading since September following four consecutive m/m increases. The HPI was at 441.43 in February, up 14.8% from its August 2022 low of 384.59. The year-on-year growth rate eased to 1.7% in February—the lowest since March 2012—from 1.8% in January (+4.1% in February 2025), down from a high of 6.9% in February 2024 and well below a peak of 18.5% in February 2022.

By region, February FHFA house prices showed a mixed performance. House prices fell m/m in February (vs. January) in four of the nine census divisions. Declines were led by Mountain (-1.1% vs. +0.4%), followed by Pacific (-0.5% vs. +0.6%), West North Central (-0.4% vs. +0.3%), and Middle Atlantic (-0.1% vs. +0.3%). To the upside, house prices rose m/m in four census divisions in February (vs. January): South Atlantic (+0.6% vs. -0.2%), East South Central (+0.2% vs. +1.2%), New England (+0.2% vs. +0.6%), and West South Central (+0.2% vs. -0.3%). Meanwhile, house prices in East North Central were virtually unchanged m/m for the second successive month in February following seven straight m/m gains.

Year-on-year house prices continued to rise in February in most regions, except Mountain, Pacific, and West South Central. The y/y growth rate accelerated in February (vs. January) in only two of the nine census divisions: East South Central (+4.0% vs. +3.2%) and South Atlantic (+0.9% vs. +0.4%). Meanwhile, house price growth decelerated y/y in February (vs. January) in four regions: New England (+3.1% vs. +3.9%), West North Central (+3.1% vs. +3.6%), East North Central (+3.8% vs. +4.5%), and Middle Atlantic (+4.2% vs. +4.5%). To the downside, Mountain (-0.7% vs. 0.0%), Pacific (-0.4% vs. -0.3%), and West South Central (-0.1% vs. -0.4%) posted y/y declines in February.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

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- February FHFA HPI 0.0% m/m; +1.7% y/y, lowest since Mar. ’12.
- House prices down m/m in four of nine census divisions, led by Mountain (-1.1%); up in four, driven by South Atlantic (+0.6%); flat in East North Central.
- House prices up y/y in six of nine regions, led by Middle Atlantic (+4.2%), but down in Mountain (-0.7%), Pacific (-0.4%), and West South Central (-0.1%).

U.S. FHFA House Prices Flat in February After Four Straight M/M Gains

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Early PPI reports in the monetary union show collective pressures building over the past year, with newly emergent pressures popping up strongly in March.

The sequence of monthly inflation observations for these five early reporters in March shows that inflation pressure has not been clearly building but did jump up suddenly in March. In February, before the Iran war, the median monthly PPI gain was -0.5%. In March, that jumped to +3.9% (median month-to-month gain). Monthly pressure does not show steady gains anywhere except moderately in Germany. Finland shows deceleration in progress (!) even through—especially through—March, as its PPI in March fell by 5.3%. But the whole Finish pattern is somewhat upside down, with prices up month-to-month by 6.2% in January and 2.9% in February. It is not a trend that is easy to understand.

However, the March monthly gains are strong enough to drive sequential inflation higher from 12-months, to 6-months, to 3-months across all early-reporting countries. Even the German ex-energy index shows acceleration on that profile.

On a year-on-year basis, two of the early reporters have PPI inflation below 2%. Finland has 12-month PPI inflation at 2.1%, but Italy and Spain have inflation much higher, up by 3.4% over 12 months in Spain and by 5.6% in Italy.

The PPI has been very well-behaved in the last few years. Looking at 12-month changes for the year ended in March, the median change for this group in 2025 was -0.1%, compared to -4.6% in 2024.

The chart shows the PPI flared sharply in 2021 and 2022, then fell quickly into line in 2023. Clearly, the inflation tune now is being called by oil prices, the same as for that spike prices in 2022 and 2023.

The hope is that the oil price bump up will not be as long-lived, that the war will end soon, with the Strait of Hormuz reopened, and that oil prices—and other inflation pressures—will sink back to prerevision norms relatively quickly. That could happen, but so could other outcomes so markets remain wary. One problem this time is the destruction of oil facilities and the shutting of oil fields that could cause high prices to linger longer.

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**A new dynamic**
However, there is now a new dynamic with the UAE leaving OPEC. OPEC has been a vehicle to harness common behavior to control oil prices mostly to keep them higher. While undermining OPEC (UAE pumps about 13% of OPEC capacity) at a time the U.S. oil prowess has risen, this defection will make it much harder for OPEC to control prices. When countries are not bound together, the incentive is for countries to cheat on their production quota. In a cartel arrangement, when many cheat, the output reduction does not hold, and oil prices fall. A cartel arrangement allows for supply control and reduction which raises prices. But once prices are up, each member has an individual incentive to cheat—to sell more than his quota share of oil at the higher price. But that undermines the cartel. So, this move, this exit of UAE from the cartel, will create instability in the OPEC by moving more production outside the OPEC framework, beyond its control. Unless the Saudis are willing to be the ‘swing man’ and cut back their output to keep prices on target—something the Saudis have been increasingly unwilling to do—OPEC will be in less control.

EMU PPIs Show Instant Pressure

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.

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**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.

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**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.

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**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.

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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.

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**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.

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Asia

Economic Letter from Asia: Not Just About the Strait

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**The Distributive Trades Survey**

The U.K. Distributive Trades Survey for April 2026 and the look-ahead expectation readings for May paint an extremely soured outlook for the U.K. economy.

**Retail ranking**: Surveys for retail sales compared to a year ago, orders compared to a year ago, and sales evaluated for the time of year all have rankings near zero, which is the worst result on this timeline. This zero distinction applies to retail sales compared to a year ago. The best ranking is 11.6%; that is for sales evaluated for the time of year. Orders compared to a year ago have a 4.2 percentile standing. The stock-to-sales ratio—which is a completely different concept—shows that the inventory-to-sales ratio has a 29.9 percentile standing.

**Retail diffusion**: The raw April diffusion readings (up minus down diffusion) show that sales compared to a year ago slipped to a reading of -68 in April from -52 in March. Orders fell to -46 in April from -26 in March. Sales evaluated for the time of year fell to -32 April from -23 in March. All three measures weakened, and all three weakened decisively, resulting in extremely weak rankings. All of the rankings are executed on data back to 2002.

**Expectations for retailing**: The expectations readings for May show slippage again across all three metrics: expected sales compared to a year ago, expected orders compared to a year ago, and expected sales for the time of year. Expected sales compared to a year ago fell to -60 in May from -49 in April. Orders compared to a year ago declined to -45 in May from -30 in April, and sales for the time of year slipped to -43 from -19. In May, these readings have rankings in a 0.4 percentile standing for sales compared to a year ago, a 1.8 percentile standing for sales evaluated relative to the time of year, and a 4.6 percentile standing for orders compared to a year ago. These two panels on current and expected retail sales volumes are just simply terrible: weak monthly, weak in ranking terms, and showing slipping momentum.

The distributor trade series also provides data on the wholesale sector. While the wholesale sector is not quite as beat up as the retail sector, it's still extremely weak. There is no cause for any kind of hope that things are getting better based on wholesaling trends.

**Wholesaling**: The wholesale survey for sales compared to a year ago edged lower to -32 in April from -31 in March. Orders compared to a year ago remained at a reading of -41 in April. Sales evaluated for the time of year improved to a reading of -20 in April from -39 in March—a significant step up, but still very weak. The percentile standings for these three categories show sales compared to a year ago at the 8.8 percentile, orders compared to a year ago at the 5.6 percentile, and sales evaluated for the time of year at the 14.8 percentile.

**Wholesale Expectations**: The look-ahead observations, which provide expectations for wholesaling in May, show a similar constellation of readings, with sales compared to a year ago falling to -37 in May from -27 in April and orders compared to a year ago falling to -42 from -38, while sales evaluated for the time of year improved to  16 from  37. That category for wholesale sales improved both in April in real time and in May for expectations; however, it continues to have a very weak percentile standing, at the 17.9 percentile in May, while sales for a year ago have a 6.7 percentile standing and orders for a year ago have a 6.0 percentile standing.

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While some of the global PMI data have improved, these survey data for the U.K. are particularly dour. The war in Ukraine drags on, and there's a new conflict in Iran that has shut the Strait of Hormuz, creating energy problems for much of Europe. More broadly, supply chains have been harmed. In addition, the U.K. is undergoing a bout of political instability, as its Prime Minister is under pressure and a good deal of political uncertainty is being worsened by deteriorating economic performance.

Both the U.K. and the European Monetary Union had been showing some progress on inflation until the Iran war hit. Now, as the oil prices are up so sharply, headline inflation is going to be worse everywhere and there will probably be a bit more attention directed to the core inflation rate. However, the U.K. has had inflation too hot for a while, and it has failed to settle down. At its last meeting, the Bank of England’s Monetary Policy Committee warned that if the war was still ongoing at the next meeting, there would be a risk of a rate hike. So, it would seem that a rate hike is going to be in play unless the economy falls off a cliff first, which, based on the distributive trades data, is also something that could happen. The U.K. economy appears to be on very unsound footing, and what happens next is just about anybody's guess.

Economy in Brief: 2016

Jump to:

German Confidence Ticks Off Its Highs Ever So Slightly; Most of the Rest of EMU Tags Along Behind

U.S. Durable Goods Orders Decline; Capital Goods Backpedal

U.S. Durable Goods Orders Rebound; Capital Goods Surge

U.S. Mortgage Loan Applications Tumble

U.S. New Home Sales & Prices Improve

Spanish Price Trends

U.S. Mortgage Loan Applications Tumble

U.S. Gasoline & Crude Oil Prices Increase Again