Robert Brusca

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100323g.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>France&#8217;s business climate indicator complied by Insee, rose to
94 in March from 91 in February. This is its best standing since August
of 2008. Still it is not a good level. The climate indicator is only in
the 47th percentile of its range values over the past two decades. If
we place the current reading in a queue, instead of just positioning it
between its highs and lows, it stands in the lower 30% of its
two-decade queue of monthly values.</p>
<p>The momentum of the index is still strong as the Yr/Yr
percentage gain reading tells us. But the level is still not at an
acceptable point. At the same time President Sarkozy has implemented
reforms that in these hard times are unpopular. He has lost a key
regional election. On Tuesday a two-day national strike called by
public sector works deals another blow to the Sarkozy government. About
half the trains were running on Paris commuter lines on Tuesday
morning, while nearly two-thirds of national high-speed TGV services
were operating, according to a French news agency. National rail
operator SNCF said services would be uneven until early on Wednesday.
Teachers are protesting over job cuts and joining the demonstration,
along with other public sector workers complaining about conditions at
work and their lack of spending power.</p>
<p>Despite some sharp improvement in economic conditions the huge
fiscal help offered by the government has reached its limits. Attempts
to pull back and inject fiscal prudence are not being well-accepted in
France.</p>
<p>The economic indicators say that Sarkozy&#8217;s management of the
economy has helped put it on a continuing expansion. But the political
airs tell us that that it is still not enough improvement for the
French people who do not want and further adjustment pace on their
back. France is at an impasse of sorts.</p>
<p>So this is the newest wrinkle in Euroland. But there is anther
re-wrinkle to the ongoing Greek crisis and Germany&#8217;s opposition to
giving Greece help within the zone and its opposition to Greece being
helped by the IMF. It is hard to understand what the German&#8217;s have to
gain by dogging a beleaguered Greece in this way. But the Greek
problem, once thought to be fading to the background is now again a
front line euro story and it is once again a reason for some new
euro-weakness.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> <b>INSEE
Industry Survey</b></th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td style="font-weight: bold;" colspan="4">&nbsp;</td>
<td style="font-weight: bold;" colspan="2">Since
Jan 1990</td>
<td style="font-weight: bold;" colspan="4">Since
Jan 1990</td>
</tr>
<tr class="grey3">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td>Mar<br>
10</td>
<td>Feb<br>
10</td>
<td>Jan<br>
10</td>
<td>Dec<br>
09</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr>
<td class="firstcol">Climate</td>
<td>94</td>
<td>91</td>
<td>92</td>
<td>89</td>
<td>47.2</td>
<td>170</td>
<td>122</td>
<td>69</td>
<td>53</td>
<td>100</td>
</tr>
<tr style="font-weight: bold;" class="grey1">
<td colspan="11" class="firstcol">Production</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Recent
Trend</td>
<td>-6</td>
<td>-4</td>
<td>-4</td>
<td>-10</td>
<td>57.6</td>
<td>117</td>
<td>44</td>
<td>-74</td>
<td>118</td>
<td>-8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Likely
trend</td>
<td>4</td>
<td>-3</td>
<td>-3</td>
<td>-5</td>
<td>62.9</td>
<td>134</td>
<td>30</td>
<td>-40</td>
<td>70</td>
<td>5</td>
</tr>
<tr style="font-weight: bold;" class="grey1">
<td colspan="11" class="firstcol">Orders/Demand</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Orders&amp;Demand</td>
<td>-45</td>
<td>-48</td>
<td>-46</td>
<td>-52</td>
<td>22.2</td>
<td>215</td>
<td>25</td>
<td>-65</td>
<td>90</td>
<td>-17</td>
</tr>
<tr>
<td class="firstcol">&nbsp;FgnOrders&amp;Demand</td>
<td>-38</td>
<td>-46</td>
<td>-45</td>
<td>-54</td>
<td>32.4</td>
<td>211</td>
<td>31</td>
<td>-71</td>
<td>102</td>
<td>-13</td>
</tr>
<tr style="font-weight: bold;" class="grey1">
<td colspan="11" class="firstcol">Prices</td>
</tr>
<tr>
<td class="firstcol">Likely Sales Price
Trend</td>
<td>-6</td>
<td>-8</td>
<td>-8</td>
<td>-18</td>
<td>36.2</td>
<td>166</td>
<td>24</td>
<td>-23</td>
<td>47</td>
<td>0</td>
</tr>
</tbody>
</table>
</body></html>

France’s business climate indicator complied by Insee, rose to 94 in March from 91 in February. This is its best standing since August of 2008. Still it is not a good level. The climate indicator is only in the 47th percentile of its [...]

French Business Climate Gets Better As Political Climate Gets Worse…

Tom Moeller

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100323a.jpg" align="left" border="0" height="265" width="353">It probably was the weather that helped depress home sales
last month. The National Association of Realtors reported that sales of<b>
existing homes</b> fell 0.6% from January as winter storms again
blanketed the East and Midwest regions. The slip to 5.0200M units
(SAAR) followed a little-revised 7.2% January decline and a sharper
16.2% December slump. February sales were the lowest since last June
and roughly matched Consensus expectations. Total sales include sales
of condos and co-ops. Sales of existing single-family homes alone fell
a larger 1.4% from January to 4.370M. (These data have a longer history
than the total sales series). Sales of condos and co-ops rose by nearly
one-third from the last year.</p>
<p>Sales have been helped by a recently extended tax credit for
first-time home buyers. The credit of up to $8,000 which runs though
April 30. Additionally, a new credit of up to $6,500 is available to
some existing home owners who move. The full details of the home-buyer
tax credit can be found <a href="http://www.federalhousingtaxcredit.com/2009/faq.php">here</a>.</p>
<p>The median price of all existing homes was roughly unchanged
last month at $165,100 but off 30% from the 2007 peak. The price of a
single-family home inched up m/m to $164,300 (-2.1% y/y). Price
weakness sharply raised home affordability; by 7.8% since July and by
two-thirds from the 2006 low. The median family income for existing
home buyers was $60,494 and mortgage payments amounted to 14.1% of that
total.</p>
<p>The number of unsold homes (single-family &amp; co-ops)
for sale rose 9.5%. However, it was down from last year and near the
lowest since 2006. At the current sales rate there was an 8.6 months'
supply of homes on the market. The latest figure was up m/m due to
depressed sales but still down from a high of 11.3 months during April
of 2008. For single-family homes, the inventory rose m/m to an 8.2
months' supply, near the lowest since 2007.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100323b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100323c.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>Existing
Home Sales (Thous, SAAR)</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>Feb. 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>Total</b></td>
<td>5,020</td>
<td>5,050</td>
<td>5,440</td>
<td>7.0%</td>
<td>5,160</td>
<td>4,893</td>
<td>5,674</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp; Northeast</b></td>
<td>840</td>
<td>820</td>
<td>920</td>
<td>12.0</td>
<td>863</td>
<td>845</td>
<td>1,010</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp; Midwest</b></td>
<td>1,110</td>
<td>1,080</td>
<td>1,160</td>
<td>8.8</td>
<td>1,166</td>
<td>1,130</td>
<td>1,331</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp; South</b></td>
<td>1,850</td>
<td>1,870</td>
<td>2,020</td>
<td>6.9</td>
<td>1,913</td>
<td>1,860</td>
<td>2,243</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp; West</b></td>
<td>1,220</td>
<td>1,280</td>
<td>1,350</td>
<td>3.4</td>
<td>1,216</td>
<td>1,064</td>
<td>1,095</td>
</tr>
<tr>
<td class="firstcol"><b>Single-Family Sales</b></td>
<td>4,370</td>
<td>4,430</td>
<td>4,760</td>
<td>4.3</td>
<td>4,573</td>
<td>4,341</td>
<td>4,960</td>
</tr>
<tr>
<td class="firstcol"><b>Median Price, Total, $
(NSA)</b></td>
<td>165,100</td>
<td>164,900</td>
<td>170,500</td>
<td>-1.8</td>
<td>172,742</td>
<td>197,233</td>
<td>216,633</td>
</tr>
</tbody>
</table>
</body></html>

It probably was the weather that helped depress home sales last month. The National Association of Realtors reported that sales of existing homes fell 0.6% from January as winter storms again blanketed the East and Midwest regions. [...]

U.S. Existing Home Sales Remain Depressed

U.S. Existing Home Sales RemainDepressed

Louise Curley

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322e.jpg" align="left" border="0" height="265" width="353"></p>
<p>Canadian consumer prices, seasonally adjusted, increased 1.57%
in February from a year ago. The core index showed a larger increase,
2.04%. The core index has been rising faster than the total index since
November 2008, as can be seen in the first chart. The core index
usually rises more slowly than the total index since the idea behind
the core index is to exclude those items whose prices are particularly
volatile, like food and energy. However, when the prices of such items
decline faster that the general price level, the Core index will rise
faster than the Total index. The second chart shows the sharp decline
in the price of fuel oil and other fuels that took place from late 2008
until the summer of 2009. The rise since then suggests that sooner or
later, the Total Index will be rising faster than the Core.</p>
<p>Buried in the extensive detail of the index is a component
entitled Travel Accommodations that would not ordinarily cause comment,
however, the rise of this component in February was striking as can be
seen in the third chart. The rise was due apparently to increases in
the prices of hotel rooms and other travel accommodations during the
Olympics at Vancouver. The impact on the total index, was muted as the
weight of the Travel Accommodation component is only 1.15%.</p>
<p>The actual indexes and the weights are found in the Haver Data
Base, CANSIM.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322f.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322g.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">&nbsp;</th>
<th scope="col"><b>Feb 10&nbsp;</b></th>
<th scope="col"><b>Jan 09</b></th>
<th scope="col"><b>Feb 09</b></th>
<th scope="col"><b>M/M Chg</b></th>
<th scope="col"><b>Y/Y Chg</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">Total Index (SA,
2002=100)&nbsp;</td>
<td>116.1</td>
<td>116.0</td>
<td>114.3</td>
<td>0.09</td>
<td>1.57</td>
<td>114.0</td>
<td>114.1</td>
<td>111.4</td>
</tr>
<tr>
<td class="firstcol">Core Index (SA,
2002=100)</td>
<td>115.3</td>
<td>114.9</td>
<td>113.0</td>
<td>0.35</td>
<td>2.04</td>
<td>113.6</td>
<td>111.7</td>
<td>109.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Index (NSA,
2002=100)</td>
<td>115.6</td>
<td>115.1</td>
<td>113.8</td>
<td>0.42</td>
<td>1.58</td>
<td>114.4</td>
<td>114.1</td>
<td>111.5</td>
</tr>
<tr>
<td class="firstcol">Fuel Oil and other
Fuels</td>
<td>176.0</td>
<td>181.6</td>
<td>157.6</td>
<td>-3.08</td>
<td>11.68</td>
<td>158.0</td>
<td>225.4</td>
<td>122.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Travel&nbsp;
Accommodations (NSA, 2002=100)</td>
<td>87.8</td>
<td>74.0</td>
<td>75.7</td>
<td>18.65</td>
<td>15.98</td>
<td>79.7</td>
<td>81.8</td>
<td>79.8</td>
</tr>
</tbody>
</table>
</body></html>

Canadian consumer prices, seasonally adjusted, increased 1.57% in February from a year ago. The core index showed a larger increase, 2.04%. The core index has been rising faster than the total index since November 2008, as can be seen [...]

Canadian Consumer Prices

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>Canadian Retail sales rose a sharp 0.7% in January. Deflated
by the CPI the retail sales rise comes back to a still respectable 0.4%
gain. The year-over-year plot in the chart shows the acceleration in
nominal retail sales is slowing. And that sort of thing is inevitable
as growth rates climb. But it is also inevitable as recovery progresses
and the recession gets pushed farther into history. In January the
Yr/Yr gain is marked from January a year ago when sales rose by 1.7%.
The December base for the year &#8211;over-year calculation is December 2009
when retail sales fell by 5% month-to-month. No wonder there is a
noticeable backtracking there in the Yr/Yr rate of growth!</p>
<p>But the shorter sequential growth rate progression ( 3-M, 6-M
12-M) demonstrates that nominal sales growth has actually cooled over
the past three-months compared to the 6-M and 12-M pace. On closer
inspection that seems to have more to do with inflation as CPI-deflated
retail sales accelerated to 3% over 6-months from 0.9% over 12 months
and then to 3.9% over three months compared to six months. In the new
quarter (2010-Q1) sales are rising at a 3.7% annual rate so the
stronger growth rate seems to be mostly holding up.</p>
<p>The nominal sales data also show much more momentum in sales
with motor vehicles excluded. The evidence there is of much stronger
consumer spending in train. Retail less MV sales have accelerated from
5.5% over 12-months to 7.9% over 6-months to 10.1% over three months.
In the current quarter the pace for sales is an even stronger 14%.</p>
<p>So there are various ways to assess the Canadian consumer. For
the most part the consumer seems to be back to the store had shopping
with gusto. Of course the Olympic Games came to Canada in February and
so there could be a further boost to these figures at that time with
the influx of tourists. For the moment, without the Olympic effect
Canada&#8217;s consumers appear to be back on a spending path. Only auto
purchases are lagging.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col"><b>Canada
Retail Sales</b> </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td style="font-weight: bold;" colspan="3">Mo/Mo</td>
<td style="font-weight: bold;" colspan="4">Saar</td>
<td style="font-weight: bold;">New QTR</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">Nominal %</td>
<td style="font-weight: bold;">Jan-10</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Nov-09</td>
<td style="font-weight: bold;">3-Mo</td>
<td style="font-weight: bold;">6-Mo</td>
<td style="font-weight: bold;">12-MO</td>
<td style="font-weight: bold;">Yr-Ago</td>
<td style="font-weight: bold;">Saar</td>
</tr>
<tr>
<td class="firstcol">Total RTL</td>
<td style="font-weight: bold;">0.7%</td>
<td style="font-weight: bold;">0.5%</td>
<td style="font-weight: bold;">-0.4%</td>
<td style="font-weight: bold;">3.5%</td>
<td style="font-weight: bold;">6.0%</td>
<td style="font-weight: bold;">6.0%</td>
<td style="font-weight: bold;">-6.3%</td>
<td style="font-weight: bold;">5.7%</td>
</tr>
<tr>
<td class="firstcol">New Car Dealers</td>
<td>-2.3%</td>
<td>-0.4%</td>
<td>-2.3%</td>
<td>-18.2%</td>
<td>-0.6%</td>
<td>10.6%</td>
<td>-19.5%</td>
<td>-18.3%</td>
</tr>
<tr>
<td class="firstcol">Supermarkets</td>
<td>2.0%</td>
<td>-0.7%</td>
<td>1.0%</td>
<td>9.6%</td>
<td>4.6%</td>
<td>0.7%</td>
<td>8.2%</td>
<td>11.7%</td>
</tr>
<tr>
<td class="firstcol">Clothing Stores</td>
<td>0.2%</td>
<td>1.5%</td>
<td>-2.5%</td>
<td>-3.5%</td>
<td>1.3%</td>
<td>-0.7%</td>
<td>-3.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td style="font-weight: bold;" class="firstcol">Retail
less MVs</td>
<td style="font-weight: bold;">1.8%</td>
<td style="font-weight: bold;">0.7%</td>
<td style="font-weight: bold;">0.0%</td>
<td style="font-weight: bold;">10.1%</td>
<td style="font-weight: bold;">7.9%</td>
<td style="font-weight: bold;">5.5%</td>
<td style="font-weight: bold;">-3.0%</td>
<td style="font-weight: bold;">14.0%</td>
</tr>
<tr>
<td class="firstcol">CPI defalted Retail</td>
<td style="font-weight: bold;">0.4%</td>
<td style="font-weight: bold;">0.0%</td>
<td style="font-weight: bold;">0.5%</td>
<td style="font-weight: bold;">3.9%</td>
<td style="font-weight: bold;">3.0%</td>
<td style="font-weight: bold;">1.9%</td>
<td style="font-weight: bold;">1.1%</td>
<td style="font-weight: bold;">3.7%</td>
</tr>
</tbody>
</table>
</body></html>

Canadian Retail sales rose a sharp 0.7% in January. Deflated by the CPI the retail sales rise comes back to a still respectable 0.4% gain. The year-over-year plot in the chart shows the acceleration in nominal retail sales is slowing. [...]

Canadian Retail Sales Are On A Roll

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<br>

<span id="articletext">
<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322a.jpg" align="left" border="0" height="265" width="363"></p>
<p>Economic activity slowed last month according to the Chicago
Fed National Activity Index (CFNAI) from the Federal Reserve Bank of
Chicago. Was severe winter weather behind the slowdown or was there
more behind the index decline to -0.64 from a downwardly revised -0.04
in January? Regardless, positive economic growth still was indicated by
the increase from the series' low of -4.14 reached one year ago. During
the last ten years the has been a 76% correlation between the index
level and the q/q change in real GDP.</p>
<p><b>The three-month moving average of the index, which
smoothes out some of the series' volatility, also fell to -0.39 from
its highest level since 2007.</b></p>
<p>An index level at or below -0.70 typically has indicated
negative U.S. economic growth. A zero value of the CFNAI indicates that
the economy is expanding at its historical trend rate of growth of
roughly 3.0%. The complete CFNAI report is available <a href="http://www.chicagofed.org/digital_assets/publications/cfnai/2010/cfnai_march2010.pdf">here</a>.</p>
<p>The Chicago Fed indicated that each of the series' components
except sales, inventories &amp; orders contributed negatively to
the overall decline. Overall, a reduced 34 of the 85 individual
indicators made positive contributions to the index while 51 made
negative contributions. The CFNAI is a weighted average of 85
indicators of economic activity. The indicators reflect activity in the
following categories: production &amp; income, the labor market,
personal consumption &amp; housing, manufacturing &amp; trade
sales, and inventories &amp; orders.</p>
<p>In a separate survey, the Chicago Fed indicated that its
Midwest manufacturing index improved during January to its highest
level since December 2008. Indicators for the auto, steel, machinery
and resource sectors each rose. The Chicago Federal Reserve figures are
available in Haver's <b>SURVEYS </b>database.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322c.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"><a ;="" href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM"><b>Chicago Fed</b></a></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>February '09</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">CFNAI</td>
<td>-0.64</td>
<td>-0.04</td>
<td>-0.50</td>
<td>-2.48</td>
<td>-1.62</td>
<td>-1.79</td>
<td>-0.35</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Moving
Average</td>
<td>-0.39</td>
<td>-0.13</td>
<td>-0.42</td>
<td>-3.47</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Personal Consumption &amp; Housing&nbsp;</td>
<td>-0.45</td>
<td>-0.44</td>
<td>-0.48</td>
<td>-0.49</td>
<td>-0.49</td>
<td>-0.32</td>
<td>-0.09</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Employment, Unemployment &amp; Hours</td>
<td>-0.16</td>
<td>-0.02</td>
<td>-0.23</td>
<td>-1.34</td>
<td>-0.76</td>
<td>-0.67</td>
<td>-0.15</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Production &amp; Income</td>
<td>-0.08</td>
<td>0.41</td>
<td>0.05</td>
<td>-0.53</td>
<td>-0.24</td>
<td>-0.56</td>
<td>-0.05</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Sales, Inventories &amp; Orders</td>
<td>0.05</td>
<td>0.02</td>
<td>0.16</td>
<td>-0.13</td>
<td>-0.15</td>
<td>-0.25</td>
<td>-0.06</td>
</tr>
</tbody>
</table>
</body></html>

Economic activity slowed last month according to the Chicago Fed National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago. Was severe winter weather behind the slowdown or was there more behind the index decline to [...]

Chicago Fed Index Indicates Slower Growth Last Month

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322a.jpg" align="left" border="0" height="265" width="363"></p>
<p>Economic activity slowed last month according to the Chicago
Fed National Activity Index (CFNAI) from the Federal Reserve Bank of
Chicago. Was severe winter weather behind the slowdown or was there
more behind the index decline to -0.64 from a downwardly revised -0.04
in January? Regardless, positive economic growth still was indicated by
the increase from the series' low of -4.14 reached one year ago. During
the last ten years the has been a 76% correlation between the index
level and the q/q change in real GDP.</p>
<p><b>The three-month moving average of the index, which
smoothes out some of the series' volatility, also fell to -0.39 from
its highest level since 2007.</b></p>
<p>An index level at or below -0.70 typically has indicated
negative U.S. economic growth. A zero value of the CFNAI indicates that
the economy is expanding at its historical trend rate of growth of
roughly 3.0%. The complete CFNAI report is available <a href="http://www.chicagofed.org/digital_assets/publications/cfnai/2010/cfnai_march2010.pdf">here</a>.</p>
<p>The Chicago Fed indicated that each of the series' components
except sales, inventories &amp; orders contributed negatively to
the overall decline. Overall, a reduced 34 of the 85 individual
indicators made positive contributions to the index while 51 made
negative contributions. The CFNAI is a weighted average of 85
indicators of economic activity. The indicators reflect activity in the
following categories: production &amp; income, the labor market,
personal consumption &amp; housing, manufacturing &amp; trade
sales, and inventories &amp; orders.</p>
<p>In a separate survey, the Chicago Fed indicated that its
Midwest manufacturing index improved during January to its highest
level since December 2008. Indicators for the auto, steel, machinery
and resource sectors each rose. The Chicago Federal Reserve figures are
available in Haver's <b>SURVEYS </b>database.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322c.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"><a ;="" href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM"><b>Chicago
Fed</b></a></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>February '09</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">CFNAI</td>
<td>-0.64</td>
<td>-0.04</td>
<td>-0.50</td>
<td>-2.48</td>
<td>-1.62</td>
<td>-1.79</td>
<td>-0.35</td>
</tr>
<tr>
<td class="firstcol">&nbsp; 3-Month Moving
Average</td>
<td>-0.39</td>
<td>-0.13</td>
<td>-0.42</td>
<td>-3.47</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Personal Consumption &amp; Housing&nbsp;</td>
<td>-0.45</td>
<td>-0.44</td>
<td>-0.48</td>
<td>-0.49</td>
<td>-0.49</td>
<td>-0.32</td>
<td>-0.09</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Employment, Unemployment &amp; Hours</td>
<td>-0.16</td>
<td>-0.02</td>
<td>-0.23</td>
<td>-1.34</td>
<td>-0.76</td>
<td>-0.67</td>
<td>-0.15</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Production &amp; Income</td>
<td>-0.08</td>
<td>0.41</td>
<td>0.05</td>
<td>-0.53</td>
<td>-0.24</td>
<td>-0.56</td>
<td>-0.05</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Sales, Inventories &amp; Orders</td>
<td>0.05</td>
<td>0.02</td>
<td>0.16</td>
<td>-0.13</td>
<td>-0.15</td>
<td>-0.25</td>
<td>-0.06</td>
</tr>
</tbody>
</table>
<span id="articletitle">Canadian Retail Sales Are On A Roll</span><br>
<span id="byline">by <a href="/comment/Brusca.html">Robert
Brusca</a> March 22, 2010</span>
<span id="articletext">
<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>Canadian Retail sales rose a sharp 0.7% in January. Deflated
by the CPI the retail sales rise comes back to a still respectable 0.4%
gain. The year-over-year plot in the chart shows the acceleration in
nominal retail sales is slowing. And that sort of thing is inevitable
as growth rates climb. But it is also inevitable as recovery progresses
and the recession gets pushed farther into history. In January the
Yr/Yr gain is marked from January a year ago when sales rose by 1.7%.
The December base for the year &#8211;over-year calculation is December 2009
when retail sales fell by 5% month-to-month. No wonder there is a
noticeable backtracking there in the Yr/Yr rate of growth!</p>
<p>But the shorter sequential growth rate progression ( 3-M, 6-M
12-M) demonstrates that nominal sales growth has actually cooled over
the past three-months compared to the 6-M and 12-M pace. On closer
inspection that seems to have more to do with inflation as CPI-deflated
retail sales accelerated to 3% over 6-months from 0.9% over 12 months
and then to 3.9% over three months compared to six months. In the new
quarter (2010-Q1) sales are rising at a 3.7% annual rate so the
stronger growth rate seems to be mostly holding up.</p>
<p>The nominal sales data also show much more momentum in sales
with motor vehicles excluded. The evidence there is of much stronger
consumer spending in train. Retail less MV sales have accelerated from
5.5% over 12-months to 7.9% over 6-months to 10.1% over three months.
In the current quarter the pace for sales is an even stronger 14%.</p>
<p>So there are various ways to assess the Canadian consumer. For
the most part the consumer seems to be back to the store had shopping
with gusto. Of course the Olympic Games came to Canada in February and
so there could be a further boost to these figures at that time with
the influx of tourists. For the moment, without the Olympic effect
Canada&#8217;s consumers appear to be back on a spending path. Only auto
purchases are lagging.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col"><b>Canada
Retail Sales</b> </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">&nbsp;</td>
<td style="font-weight: bold;" colspan="3">Mo/Mo</td>
<td style="font-weight: bold;" colspan="4">Saar</td>
<td style="font-weight: bold;">New QTR</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">Nominal
%</td>
<td style="font-weight: bold;">Jan-10</td>
<td style="font-weight: bold;">Dec-09</td>
<td style="font-weight: bold;">Nov-09</td>
<td style="font-weight: bold;">3-Mo</td>
<td style="font-weight: bold;">6-Mo</td>
<td style="font-weight: bold;">12-MO</td>
<td style="font-weight: bold;">Yr-Ago</td>
<td style="font-weight: bold;">Saar</td>
</tr>
<tr>
<td class="firstcol">Total RTL</td>
<td style="font-weight: bold;">0.7%</td>
<td style="font-weight: bold;">0.5%</td>
<td style="font-weight: bold;">-0.4%</td>
<td style="font-weight: bold;">3.5%</td>
<td style="font-weight: bold;">6.0%</td>
<td style="font-weight: bold;">6.0%</td>
<td style="font-weight: bold;">-6.3%</td>
<td style="font-weight: bold;">5.7%</td>
</tr>
<tr>
<td class="firstcol">New Car Dealers</td>
<td>-2.3%</td>
<td>-0.4%</td>
<td>-2.3%</td>
<td>-18.2%</td>
<td>-0.6%</td>
<td>10.6%</td>
<td>-19.5%</td>
<td>-18.3%</td>
</tr>
<tr>
<td class="firstcol">Supermarkets</td>
<td>2.0%</td>
<td>-0.7%</td>
<td>1.0%</td>
<td>9.6%</td>
<td>4.6%</td>
<td>0.7%</td>
<td>8.2%</td>
<td>11.7%</td>
</tr>
<tr>
<td class="firstcol">Clothing Stores</td>
<td>0.2%</td>
<td>1.5%</td>
<td>-2.5%</td>
<td>-3.5%</td>
<td>1.3%</td>
<td>-0.7%</td>
<td>-3.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td style="font-weight: bold;" class="firstcol">Retail
less MVs</td>
<td style="font-weight: bold;">1.8%</td>
<td style="font-weight: bold;">0.7%</td>
<td style="font-weight: bold;">0.0%</td>
<td style="font-weight: bold;">10.1%</td>
<td style="font-weight: bold;">7.9%</td>
<td style="font-weight: bold;">5.5%</td>
<td style="font-weight: bold;">-3.0%</td>
<td style="font-weight: bold;">14.0%</td>
</tr>
<tr>
<td class="firstcol">CPI defalted Retail</td>
<td style="font-weight: bold;">0.4%</td>
<td style="font-weight: bold;">0.0%</td>
<td style="font-weight: bold;">0.5%</td>
<td style="font-weight: bold;">3.9%</td>
<td style="font-weight: bold;">3.0%</td>
<td style="font-weight: bold;">1.9%</td>
<td style="font-weight: bold;">1.1%</td>
<td style="font-weight: bold;">3.7%</td>
</tr>
</tbody>
</table>
<span id="articletitle">Canadian Consumer Prices</span><br>
<span id="byline">by <a href="/comment/Curley.html">Louise
Curley</a> March 22, 2010</span>
<span id="articletext">
<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322e.jpg" align="left" border="0" height="265" width="353"></p>
<p>Canadian consumer prices, seasonally adjusted, increased 1.57%
in February from a year ago. The core index showed a larger increase,
2.04%. The core index has been rising faster than the total index since
November 2008, as can be seen in the first chart. The core index
usually rises more slowly than the total index since the idea behind
the core index is to exclude those items whose prices are particularly
volatile, like food and energy. However, when the prices of such items
decline faster that the general price level, the Core index will rise
faster than the Total index. The second chart shows the sharp decline
in the price of fuel oil and other fuels that took place from late 2008
until the summer of 2009. The rise since then suggests that sooner or
later, the Total Index will be rising faster than the Core.</p>
<p>Buried in the extensive detail of the index is a component
entitled Travel Accommodations that would not ordinarily cause comment,
however, the rise of this component in February was striking as can be
seen in the third chart. The rise was due apparently to increases in
the prices of hotel rooms and other travel accommodations during the
Olympics at Vancouver. The impact on the total index, was muted as the
weight of the Travel Accommodation component is only 1.15%.</p>
<p>The actual indexes and the weights are found in the Haver Data
Base, CANSIM.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322f.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100322g.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">&nbsp;</th>
<th scope="col"><b>Feb 10&nbsp;</b></th>
<th scope="col"><b>Jan 09</b></th>
<th scope="col"><b>Feb 09</b></th>
<th scope="col"><b>M/M Chg</b></th>
<th scope="col"><b>Y/Y Chg</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">Total Index (SA,
2002=100)&nbsp;</td>
<td>116.1</td>
<td>116.0</td>
<td>114.3</td>
<td>0.09</td>
<td>1.57</td>
<td>114.0</td>
<td>114.1</td>
<td>111.4</td>
</tr>
<tr>
<td class="firstcol">Core Index (SA,
2002=100)</td>
<td>115.3</td>
<td>114.9</td>
<td>113.0</td>
<td>0.35</td>
<td>2.04</td>
<td>113.6</td>
<td>111.7</td>
<td>109.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Index (NSA,
2002=100)</td>
<td>115.6</td>
<td>115.1</td>
<td>113.8</td>
<td>0.42</td>
<td>1.58</td>
<td>114.4</td>
<td>114.1</td>
<td>111.5</td>
</tr>
<tr>
<td class="firstcol">Fuel Oil and other
Fuels</td>
<td>176.0</td>
<td>181.6</td>
<td>157.6</td>
<td>-3.08</td>
<td>11.68</td>
<td>158.0</td>
<td>225.4</td>
<td>122.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Travel&nbsp;
Accommodations (NSA, 2002=100)</td>
<td>87.8</td>
<td>74.0</td>
<td>75.7</td>
<td>18.65</td>
<td>15.98</td>
<td>79.7</td>
<td>81.8</td>
<td>79.8</td>
</tr>
</tbody>
</table>
</body></html>

Chicago Fed Index Indicates SlowerGrowth Last Month

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100319d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>The year over year charts show that momentum is still in-place
for Italy and for France despite a set-back in January. Both Italy and
France have seen orders drop in January. For France the January drop
was severe but it still did not overwhelm the gain from December.
Italy&#8217;s order drop is across both domestic and foreign orders; it also
comes on the heels of strong gains in those same orders in December but
the drop does not exceed the past month&#8217;s gains, the same as the case
for France.</p>
<p>Despite accelerating sequential growth rates from Both Italy&#8217;s
and France&#8217;s orders, with 3-mo gains far in excess of six month gains,
and ahead of Yr/Yr, however, both Italian and French orders are losing
momentum.</p>
<p>If short term orders continue to rise, the Yr/Yr momentum drop
will fade away, but it&#8217;s all a question of strength and consistency
issues for orders growth that we cannot yet know with any degree of
certainty. For now the drop in orders in France and Italy raise some
questions about e-Zone growth. Germany has a contrary trend with orders
rising strongly by 4.7% in January after a smaller drop in December.
The e-zone remains a zone of intrigue when it comes to growth and
momentum.</p>
<p><br>
</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> <b>Italy
Orders</b></th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar exept m/m</td>
<td>Jan-10</td>
<td>Dec-09</td>
<td>Nov-09</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-2.8%</td>
<td>4.7%</td>
<td>2.8%</td>
<td>20.0%</td>
<td>3.7%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foreign</td>
<td>-2.3%</td>
<td>8.4%</td>
<td>3.1%</td>
<td>42.4%</td>
<td>3.6%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Domestic</td>
<td>-3.1%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>8.9%</td>
<td>3.6%</td>
<td>0.4%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">Memo</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>2.7%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>30.4%</td>
<td>14.9%</td>
<td>4.8%</td>
</tr>
<tr style="font-weight: bold;">
<td colspan="7" class="firstcol">French Orders</td>
</tr>
<tr class="even">
<td class="firstcol">Saar exept m/m</td>
<td>Jan-10</td>
<td>Dec-09</td>
<td>Nov-09</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-10.8%</td>
<td>15.7%</td>
<td>0.5%</td>
<td>15.8%</td>
<td>5.1%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>-11.2%</td>
<td>19.9%</td>
<td>0.7%</td>
<td>32.2%</td>
<td>13.9%</td>
<td>11.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">IP xConstruct</td>
<td>0.8%</td>
<td>-0.9%</td>
<td>1.0%</td>
<td>3.7%</td>
<td>3.7%</td>
<td>4.4%</td>
</tr>
</tbody>
</table>
</body></html>

The year over year charts show that momentum is still in-place for Italy and for France despite a set-back in January. Both Italy and France have seen orders drop in January. For France the January drop was severe but it still did not [...]

Orders Drop In Italy And France Upward Trend Is Mixed

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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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.

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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.

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

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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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