Tom Moeller

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<span id="articletext">
<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100319a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>You'd think the economy was on the cusp of overheating. But
seriously, the Philadelphia Federal Reserve Bank indicated yesterday
that its index of regional factory sector activity improved this month
to the second highest level since early-2005. At 18.9 the index
slightly exceeded Consensus expectations and has been positive since
the summer. The latest figure compared to those near -40.0 this past
fall and winter.</p>
<p>During the last ten years there has been a 75% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 73% correlation with q/q growth in real GDP. The latest
survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2010/bos0310.pdf">here.</a></p>
<p>A slowing of vendor delivery speeds, a lengthened employee
workweek and higher prices provided the lift behind the general
activity index. These gains may, however, reflect harsh winter weather.
Amongst other components, new orders fell sharply and reversed much of
the February improvement. Inventories also ran off at a quickened rate
but the employment series improved to its highest since 2007. During
the last ten years, there has been a 90% correlation between the index
level and the three-month change in manufacturing sector payrolls.</p>
<p>The prices paid index rose to its highest since August 2008
and compares to negative readings one year ago. During the last ten
years there has been a 66% correlation between the prices paid index
and the three-month growth in the intermediate goods PPI. There has
been an 77% correlation with the change in core intermediate goods
prices.</p>
<p>Supporting the notion of a winter-weather effect was the
rebound in the separate index of expected business conditions in six
months to its highest in nine months. Many of the index subseries rose
including new orders and the number of employees. Expected prices paid
rose to nearly the highest level in two years and the average workweek
lengthened. Expected capital expenditures fell as did unfilled orders.</p>
<p>The figures from the Philadelphia Federal Reserve can be found
in Haver's <b>SURVEYS</b> database.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100319b.jpg" width="312">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100319c.jpg" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b>Philadelphia
Fed (%)</b></th>
<th scope="col"><b>March</b></th>
<th scope="col"><b>February</b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>March '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">General Activity Index</td>
<td>18.9</td>
<td>17.6</td>
<td>15.2</td>
<td>-31.4</td>
<td>-7.6</td>
<td>-21.4</td>
<td>5.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>9.3</td>
<td>22.7</td>
<td>3.2</td>
<td>-37.5</td>
<td>-9.7</td>
<td>-14.7</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Delivery Times</td>
<td>7.9</td>
<td>-2.1</td>
<td>6.6</td>
<td>-28.0</td>
<td>-15.3</td>
<td>-10.6</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Number of Employees</td>
<td>8.4</td>
<td>7.4</td>
<td>6.1</td>
<td>-49.8</td>
<td>-23.8</td>
<td>-8.8</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>-11.0</td>
<td>3.2</td>
<td>-1.6</td>
<td>-52.4</td>
<td>-24.0</td>
<td>-16.7</td>
<td>-3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index</td>
<td>38.6</td>
<td>32.4</td>
<td>33.2</td>
<td>-28.8</td>
<td>-3.9</td>
<td>36.3</td>
<td>26.3</td>
</tr>
</tbody>
</table>
</body></html>

You'd think the economy was on the cusp of overheating. But seriously, the Philadelphia Federal Reserve Bank indicated yesterday that its index of regional factory sector activity improved this month to the second highest level since [...]

Philadelphia Fed Index Increases With Shorter Delivery Speeds & Higher Prices

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100319a.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>You'd think the economy was on the cusp of overheating. But
seriously, the Philadelphia Federal Reserve Bank indicated yesterday
that its index of regional factory sector activity improved this month
to the second highest level since early-2005. At 18.9 the index
slightly exceeded Consensus expectations and has been positive since
the summer. The latest figure compared to those near -40.0 this past
fall and winter.</p>
<p>During the last ten years there has been a 75% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 73% correlation with q/q growth in real GDP. The latest
survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2010/bos0310.pdf">here.</a></p>
<p>A slowing of vendor delivery speeds, a lengthened employee
workweek and higher prices provided the lift behind the general
activity index. These gains may, however, reflect harsh winter weather.
Amongst other components, new orders fell sharply and reversed much of
the February improvement. Inventories also ran off at a quickened rate
but the employment series improved to its highest since 2007. During
the last ten years, there has been a 90% correlation between the index
level and the three-month change in manufacturing sector payrolls.</p>
<p>The prices paid index rose to its highest since August 2008
and compares to negative readings one year ago. During the last ten
years there has been a 66% correlation between the prices paid index
and the three-month growth in the intermediate goods PPI. There has
been an 77% correlation with the change in core intermediate goods
prices.</p>
<p>Supporting the notion of a winter-weather effect was the
rebound in the separate index of expected business conditions in six
months to its highest in nine months. Many of the index subseries rose
including new orders and the number of employees. Expected prices paid
rose to nearly the highest level in two years and the average workweek
lengthened. Expected capital expenditures fell as did unfilled orders.</p>
<p>The figures from the Philadelphia Federal Reserve can be found
in Haver's <b>SURVEYS</b> database.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100319b.jpg" width="312"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100319c.jpg" width="312">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b>Philadelphia
Fed (%)</b></th>
<th scope="col"><b>March</b></th>
<th scope="col"><b>February</b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>March '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">General Activity Index</td>
<td>18.9</td>
<td>17.6</td>
<td>15.2</td>
<td>-31.4</td>
<td>-7.6</td>
<td>-21.4</td>
<td>5.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>9.3</td>
<td>22.7</td>
<td>3.2</td>
<td>-37.5</td>
<td>-9.7</td>
<td>-14.7</td>
<td>6.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Delivery Times</td>
<td>7.9</td>
<td>-2.1</td>
<td>6.6</td>
<td>-28.0</td>
<td>-15.3</td>
<td>-10.6</td>
<td>-6.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Number of Employees</td>
<td>8.4</td>
<td>7.4</td>
<td>6.1</td>
<td>-49.8</td>
<td>-23.8</td>
<td>-8.8</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>-11.0</td>
<td>3.2</td>
<td>-1.6</td>
<td>-52.4</td>
<td>-24.0</td>
<td>-16.7</td>
<td>-3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index</td>
<td>38.6</td>
<td>32.4</td>
<td>33.2</td>
<td>-28.8</td>
<td>-3.9</td>
<td>36.3</td>
<td>26.3</td>
</tr>
</tbody>
</table>
<span id="articletitle">Orders Drop In Italy And France
Upward Trend Is Mixed</span><br>
<span id="byline">by <a href="/comment/Brusca.html">Robert
Brusca</a> March 19, 2010</span>
<span id="articletext">
<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>

Philadelphia Fed Index IncreasesWith Shorter Delivery Speeds & Higher Prices

Carol Stone, CBE

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318i.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>The U.S. current account deficit widened for a second quarter
in Q4 to $115.6 billion from $102.3 in Q3. The result was a bit
narrower, though than consensus expectations, which called for $118.5
billion. As a percentage of GDP, the deficit was 3.2%, compared with
2.9% in Q3. For 2009 as a whole, the deficit totaled $419.9 billion,
much smaller than the $706.1 billion in 2008, and the smallest annual
figure since 2001. The year's ratio to GDP was 2.9% and that was the
smallest since 2.4% in 1998.<br>
<br>
</p>
<p>The balance on goods was $145.5 billion in Q4, larger than the
$132.1 billion in Q3. Both exports and imports had a second consecutive
quarter of increases, with imports, at 9.3%, somewhat more than export,
8.8% [large as these are, they are quarter-to-quarter changes, not
annual rates]. This contrasts with the aggregates for all of 2009,
which showed a bigger drop in imports, 26.2%, than in exports, at
18.1%. The balance on services hovered in a narrow range, coming at
$36.5 billion for Q4, compared with $35.7 billion in Q3 and an average
of $35.3 billion over the last eight quarters. Exports of services
gained for a third successive quarter and imports for a second. Among
exports, freight transportation and "other" private services seem to be
leading a recovery. There is little distinctive or sustained change
among import categories; foreign travel turned up in Q3, but then edged
back, and freight transportation increased modestly in both Q3 and Q4.
The balance on income turned down a bit in Q4, but at $25.1 billion and
$29.1 billion in Q3, it is well ahead of the first half of 2009, which
showed $16.6 billion in Q2 and $18.2 billion in Q1. Direct investment
income, both receipts and payments, contributed to an upturn in income
flows as economies in the US and abroad come out of recession.
Unilateral transfers sagged somewhat in Q4, coming in at $31.8 billion,
down from $35.0 and $33.3 billion in Q3 and Q2, respectively. For the
year, however, they totaled $130.2 billion, up from $128.4 billion in
2008 and a record for a single year. Government grants and pension
payments were larger in the year; private remittances were a bit
smaller than in 2008, but were still the second largest annual amount
ever.<br>
<br>
</p>
<p>Financial flows showed somewhat irregular movements. In Q3 and
Q4, there were net outflows of US funds as ownership of assets abroad
increased. In Q3 this was a substantial $269.2 billion, and in Q4,
"just" $99.1 billion. The Q3 amount included securities purchases, bank
lending and the receipt of $47.7 billion in an allocation of special
drawing rights (SDRs) from the IMF, a world-wide move intended to
bolster world trade. For all of 2009, US private assets abroad
increased by a total of $727.0 billion, a sharp turn-around from the
liquidation of assets abroad of $534.4 billion in 2008. All US assets
abroad increased by $237.5 billion for 2009, a very different result
from the basically flat pattern in 2008.</p>
<p>Foreigners resumed significant purchases of assets in the US
during the second half of 2009, amounting to $343.4 billion in Q3 and
$144.8 billion in Q4. Foreign official investors were sizable buyers of
US Treasury securities throughout the year, and private investors
picked up their direct investment in the second half; while this latter
came at a slower pace than 2006 through 2008, it did mark an upturn
from quite sluggish amounts in the first half of 2009. These financial
flows thus indicate some hesitant recovery following the recent
dramatic contractions in world financial markets and the world economy,
evident in the last graph by the retreat of both lines toward zero.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318j.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318k.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a ;="" href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Balance of Payments</a></b>
<span style="color: white; font-weight: bold;">SA</span></th>
<th scope="col"><b>4Q '09</b></th>
<th scope="col"><b>3Q '09</b></th>
<th scope="col"><b>2Q '09</b></th>
<th scope="col"><b>Year Ago</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>Current Account
Balance ($ Bil.)</b></td>
<td>-115.6</td>
<td>-102.3</td>
<td>-97.7</td>
<td>-154.9</td>
<td>-419.9</td>
<td>-706.1</td>
<td>-726.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Deficit % of GDP</td>
<td>3.2</td>
<td>2.9</td>
<td>2.8</td>
<td>4.3</td>
<td>2.9</td>
<td>4.9</td>
<td>5.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; <b>Balance on
Goods ($ Bil.)</b></td>
<td>-145.5</td>
<td>-132.1</td>
<td>-115.5</td>
<td>-178.8</td>
<td>-517.0</td>
<td>-840.3</td>
<td>-831.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Exports&nbsp;</td>
<td>8.8%</td>
<td>7.2%</td>
<td>-1.3%</td>
<td>-1.3%</td>
<td>-18.1%</td>
<td>12.2%</td>
<td>12.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imports&nbsp;</td>
<td>9.3%</td>
<td>9.5%</td>
<td>-3.2%</td>
<td>-7.9%</td>
<td>-26.2%</td>
<td>7.5%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; <b>Balance on
Services ($ Bil.)</b></td>
<td>36.5</td>
<td>35.7</td>
<td>34.4</td>
<td>34.3</td>
<td>138.4</td>
<td>144.3</td>
<td>129.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Exports</td>
<td>2.0%</td>
<td>3.0%</td>
<td>2.0%</td>
<td>-1.4%</td>
<td>-7.4%</td>
<td>8.9%</td>
<td>15.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imports</td>
<td>1.9%</td>
<td>2.7%</td>
<td>-0.2%</td>
<td>-4.1%</td>
<td>-8.5%</td>
<td>8.0%</td>
<td>7.5%</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp; Balance on
Income ($ Bil.)</b></td>
<td>25.1</td>
<td>29.1</td>
<td>16.6</td>
<td>21.1</td>
<td>89.0</td>
<td>118.2</td>
<td>90.8</td>
</tr>
<tr>
<td class="firstcol"><b>&nbsp; Unilateral
Transfers ($ Bil.)</b></td>
<td>-31.8</td>
<td>-35.0</td>
<td>-33.3</td>
<td>-31.5</td>
<td>-130.2</td>
<td>-128.4</td>
<td>-116.0</td>
</tr>
</tbody>
</table>
</body></html>

The U.S. current account deficit widened for a second quarter in Q4 to $115.6 billion from $102.3 in Q3. The result was a bit narrower, though than consensus expectations, which called for $118.5 billion. As a percentage of GDP, the [...]

U.S. Current Account Deficit Widens Modestly; Flows of Goods, Services and Capital Show Signs of Recovery

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<span id="articletext">
<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318f.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>The rate of labor market improvement seems to have slowed.
Initial claims for jobless insurance fell another 5,000 last week but
it was only to 457,000 from a little revised 462,000 during the prior
week. These levels are little changed from December. This flattening
compares to earlier sharp declines from the recession peak of 674,000
hit twelve months ago. Claims remained near the lowest level since
January 2009. The weekly decline about matched the Consensus
expectation. The four-week moving average of initial claims inched up
to 471,250.</p>
<p>Continuing claims for unemployment insurance during the latest
week remained near the cycle-low and were down by one-third since
late-June. The overall decline is a function of the improved job market
but also reflects the exhaustion of 26 weeks of unemployment benefits.
Continuing claims provide an indication of workers' ability to find
employment. The four-week average of continuing claims held roughly
steady at the cycle low of 4.579 mil. This series dates back to 1966.</p>
<p>Extended benefits for unemployment insurance dropped sharply
to another cycle low of 155,592. They were down by two-thirds from a
peak of 597,688 reached in November.Each state administers a separate
unemployment insurance program within guidelines established by Federal
law. Benefit amounts and the length of time benefits are received and
determined by state law. For example, in Michigan and New York an
additional 73 weeks of benefits are available and in California an
additional 79 weeks are available.</p>
<p>The insured rate of unemployment held steady at 3.5% during
the prior week. The rate reached a high of 5.2% during late-June.
During the last ten years, there has been a 93% correlation between the
level of the insured unemployment rate and the overall rate of
unemployment published by the Bureau of Labor Statistics.</p>
<p>The highest insured unemployment rates in the week ending
February 21 were in Alaska (7.2% percent), Oregon (6.3), Pennsylvania
(6.3), Wisconsin (6.1), Michigan (5.6), Nevada (5.6) and North Carolina
(5.4). The lowest insured unemployment rates were in Virginia (2.3),
Texas (2.4), Florida (3.3), Georgia (3.3), Mississippi (3.6), Wyoming
(3.7), Maryland (3.7), Ohio (3.8), Indiana (3.9), New York (4.3) and
Maine (4.6). These data are not seasonally adjusted but the overall
insured unemployment rate is.</p>
<p>The unemployment insurance claims data is available in Haver's
<b>WEEKLY</b> database and the state data is in the <b>REGIONW</b>
database.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318g.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318h.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><a ;="" href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM" style="color: black;">Unemployment Insurance (000s)</a></b></th>
<th scope="col"><b>3/12/10</b></th>
<th scope="col"><b>3/6/10</b></th>
<th scope="col"><b>2/27/10</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>457</td>
<td>462</td>
<td>468</td>
<td>-29.0%</td>
<td>573</td>
<td>419</td>
<td>321</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,579</td>
<td>4,567</td>
<td>-15.8%</td>
<td>5,835</td>
<td>3,345</td>
<td>2,552</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>3.5</td>
<td>3.5</td>
<td>4.3 (3/2009)</td>
<td>4.4</td>
<td>2.5</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

The rate of labor market improvement seems to have slowed. Initial claims for jobless insurance fell another 5,000 last week but it was only to 457,000 from a little revised 462,000 during the prior week. These levels are little [...]

U.S. Initial Claims For Insurance Slip Again

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<span id="articletext">
<p></p>
<p>The Conference Board's Index of Leading Economic Indicators
rose a modest 0.1% last month following an unrevised 0.3% January
increase. While still indicating economic recovery, strength in forward
momentum has been lost. The three-month rate of increase at 6.8% was
its weakest since April. The leading index is based on actual reports
for eight economic data series. The Conference Board initially
estimates two series, consumer and capital goods orders.</p>
<p>The breadth of increase amongst the component series slipped
last month to its lowest since last March. Four of the ten components
rose during February versus nearly all of them during December. During
the most recent six months, however, all of the series rose. Prominent
in last month's increase was a steeper interest rate yield curve and
faster growth in the money supply. A shorter workweek, probably weather
related, subtracted 0.3 percentage points from the leaders' increase.</p>
<p>Continuing to suggest just modest economic growth was the
coincident indicator series which rose 0.1% after no change during
January, revised from 0.2%. The three-month change of 0.8% was
diminished from its December peak of 2.0%. Increases in industrial
production, real personal income and business sales have been modest
but compare to sharp declines late in 2008. Declines in payroll
employment also have eased considerably.</p>
<p>The lagging index rose for the first time since January 2009.
A shorter duration of unemployment and a faster increase in labor costs
turned the change positive. The ratio of coincident-to-lagging
indicators (another leading indicator) slipped following ten months of
increase.<span></span></p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318d.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318e.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/BCI/BCI.HTM" style="color: black;"><b>Business Cycle Indicators</b></a><b>
(%)</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>Oct. 6-Month % (AR)</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">Leading</td>
<td>0.1</td>
<td>0.3</td>
<td>1.2</td>
<td>9.8</td>
<td>0.4</td>
<td>-2.8</td>
<td>-0.4</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1</td>
<td>0.0</td>
<td>0.1</td>
<td>1.2</td>
<td>-5.1</td>
<td>-1.2</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3</td>
<td>-0.2</td>
<td>-0.4</td>
<td>-4.6</td>
<td>-1.6</td>
<td>3.2</td>
<td>3.0</td>
</tr>
</tbody>
</table>
</body></html>

The Conference Board's Index of Leading Economic Indicators rose a modest 0.1% last month following an unrevised 0.3% January increase. While still indicating economic recovery, strength in forward momentum has been lost. The three- [...]

Gains in U.S. Leading Economic Indicators Weaken

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<span id="articletext">
<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318a.jpg" align="left" border="0" height="265" width="353"></p>
<p>Consumer price inflation can't develop forward momentum
despite moderate improvement in the economy. Or maybe the economy's
improving in part because inflation is so low. Either way, the U.S.
Bureau of Labor Statistics reported that the February CPI was unchanged
following five consecutive months of modest 0.2% increase. The latest
figure was slightly below Consensus expectations for a 0.1% gain.</p>
<p>Prices were weak across-the-board. <b>Ener</b><b>gy
prices</b> slipped 0.5% though the weakness followed several
months of strong increase. The latest change reflected a 1.4% m/m
decline in gasoline prices but they've risen 36.8% y/y and by 58.0%
since the December '08 low. Fuel oil prices slipped 1.3% (+14.5% y/y)
but natural gas &amp; electricity prices ticked up 0.5% (-4.2% y/y).</p>
<p><b>Food &amp; beverage prices</b> continued
weak. They were unchanged last month and the y/y decline of 0.1% was
near the weakest 12-month change on record. It reflected a 2.8% y/y
decline in dairy prices and a 1.4% drop in fruit &amp; vegetable
costs. Also down 2.7% y/y were prices for meats, poultry, fish
&amp; eggs while cereal &amp; bakery product prices fell 1.1%.
Finally, the cost of eating out rose just 1.4%, a record low increase,
while alcoholic beverage prices also rose just 1.3% y/y, the least
since 1995. Sugar &amp; sweets prices have shown strength with a
2.7% y/y increase.</p>
<p><b>Core consumer prices</b>, goods &amp;
service together, rose just 0.1%. Earlier strength in <b>core
goods prices</b> continued to wane. Their 0.1% February decline
was the first negative reading since early in the recession. The
three-month gain eased to 0.7% (AR) from a high of 5.4% last April. New
&amp; used motor vehicles prices were one of the only sources of
strength and posted another firm 0.4% rise (5.3% y/y). Apparel prices
have been unchanged y/y and prices for household furnishings &amp;
operation fell 1.7%.</p>
<p><b>Core services prices</b> nudged up just 0.1%
(+0.9% y/y). Weakness in the housing market caused a 0.4% y/y decline
in shelter prices while owners equivalent rent of primary residences, a
measure not equivalent to other house price measures, slipped again m/m
(+0.3% y/y). Elsewhere in services, public transportation prices
slipped 0.1% (+4.5% y/y) but medical care services prices gained
another 0.4% (3.7% y/y). Finally, education costs remained strong and
posted a 0.5% increase (4.7% y/y) but recreation prices slipped for the
sixth straight month (-1.0% y/y).</p>
<p>The chained CPI, which adjusts for shifts in consumption
patterns slipped slightly last month and rose 2.2% year-to-year.
Chained prices less food &amp; energy gained 0.2% and just 1.0% y/y.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100318c.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><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </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">Total&nbsp;</td>
<td>0.0</td>
<td>0.2</td>
<td>0.2</td>
<td>2.2</td>
<td>-0.3</td>
<td>3.8</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.1</td>
<td>-0.1</td>
<td>0.1</td>
<td>1.3</td>
<td>1.7</td>
<td>2.3</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>-0.1</td>
<td>0.1</td>
<td>0.1</td>
<td>2.5</td>
<td>1.3</td>
<td>0.1</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.1</td>
<td>-0.2</td>
<td>0.1</td>
<td>0.9</td>
<td>1.9</td>
<td>3.1</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>-0.5</td>
<td>2.8</td>
<td>0.8</td>
<td>14.9</td>
<td>-18.1</td>
<td>13.7</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>0.0</td>
<td>0.2</td>
<td>0.1</td>
<td>-0.1</td>
<td>-0.2</td>
<td>5.4</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol"><b><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM" style="color: black;">Chained CPI: Total (NSA)</a>&nbsp;</b></td>
<td>-0.0</td>
<td>0.4</td>
<td>0.8</td>
<td>2.2</td>
<td>-0.4</td>
<td>3.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.2</td>
<td>-0.0</td>
<td>0.1</td>
<td>1.0</td>
<td>1.3</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

Consumer price inflation can't develop forward momentum despite moderate improvement in the economy. Or maybe the economy's improving in part because inflation is so low. Either way, the U.S. Bureau of Labor Statistics reported that [...]

CPI Stays Unchanged; Core Is Weak

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<span id="articletext">
<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100317e.jpg" align="left" border="0" height="265" width="363"></p>
<p>The Mortgage Bankers Association reported that mortgage
applications regained their footing during the last three weeks.
Despite a 1.9% decline last week, applications in March are 4.8% higher
than in February when they rose 10.8% from January. Applications so far
this month are at their highest level since October of last year.</p>
<p>The gain likely has been fueled by an $8,000 Federal tax
credit which is due to expire April 30. For last week, applications to <i>purchase</i>
a home fell 2.3% but they were 6.2% higher than in February. During the
last ten years there has been a 51% correlation between the y/y change
in purchase applications and the change in new plus existing single
family home sales. The correlation has lessened recently. For mortgage<i>
refinancings</i> applications fell by roughly 1.5% for the second
week but they still were at their highest in March since last August
due to low interest rates.</p>
<p>The effective fixed interest rate on conventional 15-year
mortgages fell slightly to 4.60%. For the month, overall rates have
been near the six year low. For 30-year mortgages the rate also slipped
to 5.17%. Rates reached a high of 5.79% in early-June. Interest rates
on fixed 15-year and 30-year mortgages are closely correlated
(near-90%) with the rate on 10-year Treasury securities. Rates on
adjustable one-year mortgages rose slightly to 6.83% last week.</p>
<p>The Mortgage Bankers Association surveys between 20 to 35 of
the top lenders in the U.S. housing industry to derive its refinance,
purchase and market indexes. The weekly survey covers roughly 50% of
all U.S. residential mortgage applications processed each week by
mortgage banks, commercial banks and thrifts. Visit the Mortgage
Bankers Association site <a href="http://www.mbaa.org">here</a>.<span class="title"></span>The figures for weekly mortgage
applications are available in Haver's <b>SURVEYW</b>
database.</p>
<p>Today's testimony by Fed Chairman Bed S. Bernanke, <b>The
Federal Reserve's role in bank supervision, </b>can be found <a href="http://www.federalreserve.gov/newsevents/testimony/bernanke20100317a.htm">here</a>.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100317f.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100317g.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/SURVEYW/@S5/@S5.HTM%22" style="color: black;"><b>MBA Mortgage Applications
(SA, 3/16/90=100)</b></a></th>
<th scope="col"><b>03/12/10</b></th>
<th scope="col"><b>03/05/10</b></th>
<th scope="col"><b>02/26/10</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>620.9</td>
<td>633.1</td>
<td>629.9</td>
<td>-29.2%</td>
<td>736.4</td>
<td>642.9</td>
<td>652.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>221.5</td>
<td>226.8</td>
<td>214.5</td>
<td>-13.8</td>
<td>263.5</td>
<td>345.4</td>
<td>424.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,955.9</td>
<td>3,007.2</td>
<td>3,054.3</td>
<td>-34.3</td>
<td>3,509.2</td>
<td>2,394.1</td>
<td>1,997.9</td>
</tr>
<tr>
<td class="firstcol">15-Year Mortgage Effective
Interest Rate (%)</td>
<td>4.60</td>
<td>4.54</td>
<td>4.61</td>
<td>4.77 (03/09)</td>
<td>4.85</td>
<td>5.9</td>
<td>6.2</td>
</tr>
</tbody>
</table>
</body></html>

The Mortgage Bankers Association reported that mortgage applications regained their footing during the last three weeks. Despite a 1.9% decline last week, applications in March are 4.8% higher than in February when they rose 10.8% [...]

U.S. Weekly Mortgage Applications Rise Again In March

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More pronounced upward revisions in countries more exposed to AI investment

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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

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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.

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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

Robert Brusca

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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.

United Kingdom

U.K. Retail Sales: Worse Than During Covid

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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.

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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.

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**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.

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**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.

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**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.

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**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.

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**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.

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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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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.

Economy in Brief: 2010

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