Louise Curley

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<p></p>
<p>Rapid recovery from the recession in the emerging countries of
the Pacific Rim is putting pressure on consumer and wholesale prices,
notably in India and China. Data on inflation for the two countries can
be found in Haver Analytics' EMERGEPR data base. In February, the year
to year increase in China's CPI--the measure of inflation-- was 2.66%.
There has been an almost steady rise form the last July when prices
were 1.68% <i>below</i> the year ago figure. Inflation is
much higher in India. The most up to date inflation data for India are
the January, 2010 inflation rates for Industrial, Agricultural and
Rural Workers, which were 16.22%, 17.57% and 17.35% respectively. The
latest date for the General Index, an overall index, is December, 2009
when the inflation rate was 15.47%. Consumer prices in the two
countries are shown in the first chart.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315k.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315l.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 10&nbsp;</b></th>
<th scope="col"><b>Dec 09</b></th>
<th scope="col"><b>Nov 08</b></th>
<th scope="col"><b>Oct 09</b></th>
<th scope="col"><b>Sep 09</b></th>
<th scope="col"><b>Aug 09</b></th>
<th scope="col"><b>Jul 09</b></th>
</tr>
</thead>
<tbody>
<tr style="font-weight: bold;" class="odd">
<td colspan="9" class="firstcol">China</td>
</tr>
<tr>
<td class="firstcol">Y/Y % CHANGE IN CPI</td>
<td>2.66</td>
<td>1.42</td>
<td>1.70</td>
<td>0.50</td>
<td>-0.53</td>
<td>-0.71</td>
<td>-1.06</td>
<td>-1.68</td>
</tr>
<tr>
<td class="firstcol">Y/Y%
CHANGE&nbsp; IN PPI</td>
<td>5.40</td>
<td>4.30</td>
<td>1.70</td>
<td>-2.08</td>
<td>-5.80</td>
<td>-6.95</td>
<td>-7.95</td>
<td>-8.20</td>
</tr>
<tr style="font-weight: bold;" class="odd">
<td colspan="9" class="firstcol">India</td>
</tr>
<tr>
<td class="firstcol">Y/Y % CHANGE IN
CPI General Index</td>
<td>N/A</td>
<td>N/A</td>
<td>15.47</td>
<td>13.91</td>
<td>11.83</td>
<td>12.39</td>
<td>12.88</td>
<td>13.04</td>
</tr>
<tr>
<td class="firstcol">Y/Y % CHANGE IN
CPI Industrial Workers</td>
<td>N/A</td>
<td>16.22</td>
<td>14.97</td>
<td>13.51</td>
<td>11.49</td>
<td>11.64</td>
<td>11.72</td>
<td>11.89</td>
</tr>
<tr>
<td class="firstcol">Y/Y % CHANGE IN
CPI Agric Workers</td>
<td>N/A</td>
<td>17.57</td>
<td>17.21</td>
<td>15.65</td>
<td>13.73</td>
<td>13.18</td>
<td>12.89</td>
<td>12.90</td>
</tr>
<tr>
<td class="firstcol">Y/Y % CHANGE IN
CPI&nbsp; Rural Workers</td>
<td>N/A</td>
<td>17.35</td>
<td>16.99</td>
<td>15.65</td>
<td>13.51</td>
<td>12.97</td>
<td>12.67</td>
<td>12.67</td>
</tr>
<tr>
<td class="firstcol">Y/Y%
CHANGE&nbsp; IN WPI</td>
<td>9.89</td>
<td>8.56</td>
<td>8.10</td>
<td>5.55</td>
<td>1.41</td>
<td>-0.46</td>
<td>-0.17</td>
<td>-0.54</td>
</tr>
</tbody>
</table>
</body></html>

Rapid recovery from the recession in the emerging countries of the Pacific Rim is putting pressure on consumer and wholesale prices, notably in India and China. Data on inflation for the two countries can be found in Haver Analytics' [...]

Measures Of Inflation For India And China

Robert Brusca

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<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315j.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>Japan with one of the world&#8217;s most entrenched recessions
produced some absolutely glowing consumer results for January. If
Japanese consumers can break out of their doldrums, maybe, -just maybe-
there is still hope for Germany and for Europe.</p>
<p>Also for the first time in EIGHT MONTHS the Japanese
government raised its assessment of the economy, saying the recovery is
beginning to spur profits, home building and consumer spending.</p>
<p>&#8220;The economy has been picking up steadily,&#8221; though it remains
in a &#8220;difficult situation&#8221; because of high unemployment. This statement
was from Japan&#8217;s key the Cabinet Office which said today in its report
for March that the rebound is still weak. Still, it is a hopeful remark
and Japan&#8217;s retail sales underscore that at least one undercurrent of
good news has broken though to at least one important headline.</p>
<p>Japan&#8217;s seasonally adjusted headline for retail sales shows an
acceleration to a growth rate of 7.1% over three-months compared to
4.5% over six months and 2% over 12 months. These are huge
accelerations especially from -9.2% for the year end one year ago in
January 2009.</p>
<p>Japan&#8217;s acceleration in retail sales is in retrospect
remarkable. We are always looking at the level of the growth rate and
for Japan that has been persistently negative. Moreover, Yr/Yr
calculations that are slower to turnaround tend to dominate analysis.
But Japan has come a long way on that measure too, to a 2% growth rate
in Jan 2010 compared to a minus 9.2% for the same Yr/Yr rate in Jan
2009. To be able to post a three-month annualized growth rate of seven
percent in this environment is excellent and remarkable.</p>
<p>The cabinet office interpretation is putting its stamp of
approval on this improvement and a stamp of expected longevity on the
rebound itself.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col"> <b>Japan
Retail Sales Trends</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</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>
<td>Yr-Ago</td>
<td>Q-to-Date</td>
</tr>
<tr>
<td class="firstcol">Total SA</td>
<td>2.0%</td>
<td>-0.3%</td>
<td>0.0%</td>
<td>7.1%</td>
<td>4.5%</td>
<td>2.0%</td>
<td style="color: red;">-9.2%</td>
<td style="font-weight: bold;">11.5%</td>
</tr>
<tr class="odd">
<td colspan="9" class="firstcol">Not seasonally adjusted</td>
</tr>
<tr>
<td class="firstcol">Total: Nominal</td>
<td>2.4%</td>
<td>-0.2%</td>
<td>0.0%</td>
<td>8.7%</td>
<td>5.4%</td>
<td>2.2%</td>
<td style="color: red;">-10.1%</td>
<td style="font-weight: bold;">14.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Motor
Vehicles</td>
<td>2.5%</td>
<td>-2.2%</td>
<td>4.2%</td>
<td>18.8%</td>
<td>18.6%</td>
<td>14.0%</td>
<td style="color: red;">-10.1%</td>
<td style="font-weight: bold;">14.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Food&amp; Beverage</td>
<td>5.1%</td>
<td>-1.1%</td>
<td>-0.8%</td>
<td>13.3%</td>
<td>4.5%</td>
<td>1.3%</td>
<td>10.7%</td>
<td style="font-weight: bold;">27.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Fabric
apparel &amp; access</td>
<td>3.1%</td>
<td>0.8%</td>
<td>1.6%</td>
<td>24.5%</td>
<td>10.8%</td>
<td>6.3%</td>
<td style="color: red;">-16.5%</td>
<td style="font-weight: bold;">28.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rest of
Retail</td>
<td>0.5%</td>
<td>0.7%</td>
<td>-0.9%</td>
<td style="color: red;">1.2%</td>
<td>2.0%</td>
<td>-0.6%</td>
<td style="color: red;">-20.1%</td>
<td style="font-weight: bold;">4.0%</td>
</tr>
</tbody>
</table>
</body></html>

Japan with one of the world’s most entrenched recessions produced some absolutely glowing consumer results for January. If Japanese consumers can break out of their doldrums, maybe, -just maybe- there is still hope for Germany and for [...]

Japan Retail Sales Hit Some Highlights

Tom Moeller

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<span id="articletext">
<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315g.jpg" align="left" border="0" height="265" width="353"></p>
<p>Poor weather in much of the country likely affected housing
market activity during 1Q. The National Association of Home Builders'
index of housing market activity fell this month to 15 from 17 in
February and for 1Q the index's average level was the lowest since 2Q
'09. Nevertheless, the index remained double the low of 8 hit last
January. The index is compiled from survey questions asking builders to
rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to
&#8220;very low&#8221;.<span> </span>The figure is thus a diffusion
index with numerical results over 50 indicating a predominance of
&#8220;good&#8221; readings.</p>
<p>The present sales index fell m/m to 15 from 17 and for the
second quarter also was the lowest since 2Q '09. The index of sales
during the next six months also deteriorated to the lowest level since
April of last year.The Home Builders' Association also reported that
the traffic of prospective buyers fell to the lowest level in twelve
months.</p>
<p>Supporting the notion of a strong weather factor was a sharp
decline in the Builders' index for the Midwest and in Northeast for 1Q.
In the South the index showed gains of one-quarter versus last year
during 1Q. The index for the West slipped through the quarter but
remained double the year-ago level.</p>
<p>The Home Builders' Housing Opportunity Index, which is the
share of homes sold that could be considered affordable to a family
earning the median income, slipped during 4Q '09 (the latest available
figure) to 70.8%. It had jumped earlier to a record high of 72.5%
buoyed by lower home prices, lower interest rates and higher income.
(There is a break in the series from 2002 to 2003.)</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315h.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315i.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/SURVEYS/@S4/@S4.HTM" style="color: black;">Nat'l Association of Home Builders</a></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>&nbsp;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">Composite Housing Market Index
(All Good=100)</td>
<td>15</td>
<td>17</td>
<td>15</td>
<td>9</td>
<td>15</td>
<td>16</td>
<td>27</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>15</td>
<td>17</td>
<td>15</td>
<td>8</td>
<td>13</td>
<td>16</td>
<td>27</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>24</td>
<td>27</td>
<td>26</td>
<td>15</td>
<td>24</td>
<td>25</td>
<td>37</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>10</td>
<td>12</td>
<td>12</td>
<td>9</td>
<td>13</td>
<td>14</td>
<td>21</td>
</tr>
</tbody>
</table>
</body></html>

Poor weather in much of the country likely affected housing market activity during 1Q. The National Association of Home Builders' index of housing market activity fell this month to 15 from 17 in February and for 1Q the index's [...]

U.S. Home Builders’ Index Deteriorates

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315d.jpg" align="left" border="0" height="265" width="353"></p>
<p>The factory sector improved again this month. The Federal
Reserve Bank of New York reported that its March Empire State Factory
Index of General Business Conditions held onto its sharp improvement
from the series' low twelve months ago. Though down just slightly m/m,
the index at 22.86 remained near the highest level since 2004. The
latest level suggests positive growth in factory sector activity and it
roughly matched Consensus expectations for a reading of 22.0.</p>
<p>The figure is a diffusion index. Since the series' inception
in 2001, there has been a 74% correlation between its level and the
three-month change in U.S. factory sector production. Like the
Philadelphia Fed Index of General Business Conditions, the Empire State
Business Conditions Index reflects answers to independent survey
questions; it is not a weighted combination of the components. The
series dates back only to 2001.</p>
<p>Amongst the separate survey questions, the new orders series
led with an increase to nearly the highest level since early-2006. Most
other series rose m/m, notably the inventory series which furthered the
sharp February gain and landed near its highest in several years. The
employment series also rose to 12.35, its highest since 2007. There has
been an 87% correlation between the employment index and the
three-month growth in factory sector employment as reported by the
Labor Department.</p>
<p>The prices paid index slipped m/m to 29.63 but remained up
sharply from the early-2009 low. Since inception there has been a 76%
correlation between the index of prices paid and the three-month change
in the core intermediate materials PPI.</p>
<p>The Empire State <b>index of expected business
conditions in six months</b> inched up m/m and was near the
highest since early 2004. The capital expenditure and technology
spending series both remained near the highest levels since the
recession began.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315e.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315f.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/SURVEYS/@S5/@S511/@S511.HTM">Empire State
Manufacturing Survey</a></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&nbsp;</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 Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>22.86</td>
<td>24.91</td>
<td>15.92</td>
<td>-32.29</td>
<td>-2.76</td>
<td>-9.97</td>
<td>17.22</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>25.43</td>
<td>8.78</td>
<td>20.48</td>
<td>-43.35</td>
<td>-2.52</td>
<td>-6.22</td>
<td>15.70</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Inventories</td>
<td>4.94</td>
<td>0.00</td>
<td>-17.33</td>
<td>-8.05</td>
<td>-26.97</td>
<td>-7.87</td>
<td>-3.95</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>12.35</td>
<td>5.56</td>
<td>4.00</td>
<td>-38,20</td>
<td>-17.28</td>
<td>-5.36</td>
<td>11.28</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>29.63</td>
<td>31.94</td>
<td>32.00</td>
<td>-14.61</td>
<td>1.33</td>
<td>46.99</td>
<td>35.64</td>
</tr>
</tbody>
</table>
</body></html>

The factory sector improved again this month. The Federal Reserve Bank of New York reported that its March Empire State Factory Index of General Business Conditions held onto its sharp improvement from the series' low twelve months [...]

Empire State Business Conditions Show Improved Factory Sector

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<span id="articletext">
<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315a.jpg" align="left" border="0" height="265" width="353"></p>
<p>Cold weather and utility demand were behind much of the gain
in overall industrial output last month, but improvement elsewhere
remained evident. Industrial production inched 0.1% higher after an
unrevised 0.9% January gain and a downwardly revised 0.5% December
increase. The latest figure compared to a Consensus expectation for no
change in output. Year-to-year improvement in output is, however, more
impressive than these latest monthly results. The gain versus February
of last year amounts to 1.7% and since the low last June output has
risen 5.4%. These increases compare to the 9.8% decline during all of
last year.</p>
<p>Severe weather dumped several feet of snow on the Northeast
and Midwest. That necessitated another 0.5% increase in utility output
which raised it 4.4% from last February. These increases followed
declines last year.</p>
<p>Gains in output have been about as broad-based as they get.
Sixty-percent of industries posted monthly output gains, holding near
the 64% level versus six months ago. In the factory sector output
dipped 0.2% due primarily to a 4.5% decline (+22.9% ) in motor vehicle
&amp; parts production. That reversed a like increase during
January. Elsewhere, computer (7.8% y/y), electrical equipment (-2.6%
y/y) and paper (0.0% y/y) output posted monthly gains near 1.0%.
Petroleum output also posted a strong 2.3% increase (-5.2% y/y). Output
declined modestly in the furniture (-12.0% y/y), primary metals (+27.8%
y/y) and apparel (+2.7% y/y) industries.</p>
<p>Capacity utilization rose further to 72.7%, its highest level
since December 2008, from a downwardly revised 72.5% in January. In the
factory sector alone utilization rose to 69.0% from the 2009 low of
65.1%. Utilization in the primary metals area has risen sharply to
62.3% from a 2009 average of 51.3%. There's also been rise in
utilization in the motor vehicle sector to 52.8% from a low of 36.8% in
June. Utilization was 77.0% in 2005. In the electrical equipment
industry utilization rose to 72.8% from the low of 69.3% last year. The
rise in overall industrial utilization was accompanied by another 0.1%
m/m decline in capacity which was off a record 1.2% y/y.</p>
<p>The industrial production data are available in Haver's <b>USECON</b>
database.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315b.jpg" style="width: 312px; height: 265px;"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100315c.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>Industrial
Production (SA,%)</b></th>
<th scope="col"><b>February</b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>Y/Y</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>Total Output</b></td>
<td>0.1</td>
<td>0.9</td>
<td>0.5</td>
<td>1.7</td>
<td>-9.8</td>
<td>-2.2</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>-0.2</td>
<td>0.9</td>
<td>-0.2</td>
<td>1.4</td>
<td>-11.3</td>
<td>-3.2</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">Consumer
Goods</td>
<td>-0.4</td>
<td>0.9</td>
<td>0.2</td>
<td>2.2</td>
<td>-5.2</td>
<td>-2.6</td>
<td>0.9</td>
</tr>
<tr>
<td class="firstcol">Business
Equipment</td>
<td>0.4</td>
<td>1.5</td>
<td>1.1</td>
<td>-0.7</td>
<td>-12.4</td>
<td>-1.1</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">Construction
Supplies</td>
<td>0.4</td>
<td>1.1</td>
<td>-2.2</td>
<td>-4.5</td>
<td>-17.8</td>
<td>-6.3</td>
<td>-2.0</td>
</tr>
<tr>
<td class="firstcol">Materials</td>
<td>0.3</td>
<td>0.8</td>
<td>0.5</td>
<td>2.9</td>
<td>-10.9</td>
<td>-1.9</td>
<td>2.0</td>
</tr>
<tr>
<td class="firstcol">Utilities</td>
<td>0.5</td>
<td>0.6</td>
<td>5.5</td>
<td>4.4</td>
<td>-2.7</td>
<td>0.3</td>
<td>3.4</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Capacity Utilization
(%)</b></td>
<td>72.7</td>
<td>72.5</td>
<td>71.8</td>
<td>70.6 (Feb. '09)</td>
<td>70.1</td>
<td>77.5</td>
<td>80.6</td>
</tr>
</tbody>
</table>
</body></html>

Cold weather and utility demand were behind much of the gain in overall industrial output last month, but improvement elsewhere remained evident. Industrial production inched 0.1% higher after an unrevised 0.9% January gain and a [...]

Industrial Output Gains Moderate M/M, But Remain Broad

Industrial Output Gains ModerateM/M, But Remain Broad

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<p></p>
<p><img size="2" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100312h.jpg" verdana align="left" border="0" height="265" width="353"></p>
<p>There seems to be no hurry for businesses to accumulate
inventories. A modest drop in January inventories followed a December
decline that was little-revised. It left the rate of decline just a
little less than at the peak rate of decumulation last summer. This
drop occurred at the same time as a 0.6% increase (6.8% y/y) in January
business sales. As a result, the inventory/sales ratio fell to the
lowest level since late-2007.</p>
<p>Retailers' inventory/sales ratio remains at their cycle low.
The I/S ratio for apparel stores fell to a record low as inventories
fell 9.3% y/y. The I/S ratio for general merchandise stores also fell
to a record low. Wholesalers' ratio also was at the record low while
the I/S ratio in the factory sector fell to the lowest level since
August 2008.</p>
<p>During the last few months, these depressed ratios reflect
little inclination by business to accumulate inventories which have
been flat across industries. Notably, the retail and wholesales sectors
continue to shed inventories despite higher sales. The factory sector
seems to feel the same way despite a modest January uptick in inventory
levels.</p>
<p>The business sales and inventory data are available in Haver's
<b>USECON</b> database.</p>
</span>
<img alt size="2" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100312i.jpg" style="border: 0px solid ; width: 312px; height: 265px;" verdana>
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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b>Business
Inventories (%)</b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</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</td>
<td>-0.0</td>
<td>-0.3</td>
<td>0.5</td>
<td>-8.6</td>
<td>-9.8</td>
<td>0.4</td>
<td>4.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-0.1</td>
<td>0.2</td>
<td>-0.2</td>
<td>-8.7</td>
<td>-10.6</td>
<td>-3.3</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>-0.2</td>
<td>0.4</td>
<td>-0.3</td>
<td>-4.4</td>
<td>-4.9</td>
<td>-1.9</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-0.2</td>
<td>-1.0</td>
<td>1.6</td>
<td>-9.7</td>
<td>-10.4</td>
<td>2.5</td>
<td>6.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.2</td>
<td>-0.2</td>
<td>0.2</td>
<td>-7.5</td>
<td>-8.7</td>
<td>2.2</td>
<td>3.7</td>
</tr>
</tbody>
</table>
</body></html>

There seems to be no hurry for businesses to accumulate inventories. A modest drop in January inventories followed a December decline that was little-revised. It left the rate of decline just a little less than at the peak rate of [...]

U.S. Business Inventories Roughly Unchanged; I/S Ratios Depressed

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<span id="articletext">
<p></p>
<p><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100312d.jpg" style="border: 0px solid ; width: 353px; height: 265px; float: left;" align="left"></p>
<p>In a shocker of a report EMU IP ratcheted up much more than
expected in January and the December reading got a boost due to
revision as well. As a result industrial output now is growing 1.5%
Yr/Yr in all of EMU. It is the first Yr/Yr rise in output since April
of 2008. That leaves the index for output still some 17.2% below its
cycle peak. While the Yr/Yr gain is good news and boosts output five
percentage points, up from its cycle low, clearly there is a long way
to go for Europe to get back where it was. Yr/Yr gains are a necessary,
but not a sufficient condition for full recovery.</p>
<p>This is just another way of trying to find perspective. While
the current IP rise is good news it represents only a baby step of
progress. There are still many resources left idled by recession and
the recession/ financial crisis already has dragged on for a long time
&#8211; over two years in the case of the US. Clearly with such a large
output gap in place (industrial output 17% off from its cycle peak)
some resources could spend four years being idled (roughly two in
recession and two in recovery) before they are used again. That is a
stunning prospect. It also helps to explain why the recovery could well
be stronger than what people are expecting. The economy&#8217;s ability to
grow fast for an extended period of time is simply being
underestimated. If EMU&#8217;s IP grew 8% per year for two years running it
would still not quite be back to the past cycle peak and over that
period, presumably, capacity itself would grow.</p>
<p>In Europe the broad social welfare net provides a deeper
cushion for more people compared to the assistance offered in the US.
Arguably it makes the US recession more painful and that prods the
economy and its workers more sharply to find a solution more quickly.</p>
<p>Tax cuts and incentives may help. But these sorts of things
must be very carefully crafted or they just wind up being give-aways
with no real stimulus.</p>
<p>It&#8217;s a good thing Europe is growing more briskly since this
problem in Greece is going to notch up the head winds for Europe to
some extent. Already it has unleashed a firestorm of protests within
Greece, produced cries for trading reforms especially on credit default
swaps and it has brought out some of the under the surface tensions in
EMU as German Finance Minister Wolfgang Schaeuble called for
&#8220;prohibitive&#8221; sanctions including expulsion from the euro region as the
ultimate penalty for countries that repeatedly flout debt rules. This
is chilling stuff and a full 180 degrees from Sarkozy saying if Greece
goes bankrupt, Europe will have failed. Europe remains quite
heterogeneous. Perhaps that is what European nations have most in
common.</p>
<p>The brighter more robust economic backdrop is a breath of
fresh air. More to the point it signals a stronger economic tail wind
than what we thought we had before. It can help so stave off the
effects of the harsher political head winds that suddenly have emerged.
All this underscores the nature of recovery data, that they can run hot
and cold, seemingly for no reason whatsoever. And in the wake of
recession, along with recovery, there often there is other fallout and
the pitfalls that such events bring.</p>
<p>That is why this recession is a real recession, not the
recession-lite of 1990 or of 2001. In those episodes the central banks
eased the pain early and essentially excesses have been piling up ever
since. It takes a good recession to purge the system of its hidden
abuses, or abusers, like Bernie Madoff. Had markets continued to rise,
Bernie would have escaped detection along with others like him and his
scam would have gotten bigger and more damaging. Recessions have a role
in economics and although they are bad, they are cleansing. The key is
to pick up the pieces and do better next time. If we do the next cycle
will less painful. Can we do it?</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"><b>Euro-Area
MFG IP</b> </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Jan<br>
10</td>
<td>Dec<br>
09</td>
<td>Jan<br>
10</td>
<td>Dec<br>
09</td>
<td>Jan<br>
10</td>
<td>Dec<br>
09</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Euro-Area Detail</td>
<td>Jan<br>
10</td>
<td>Dec<br>
09</td>
<td>Nov<br>
09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-4</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>1.8%</td>
<td>0.2%</td>
<td>1.4%</td>
<td>14.1%</td>
<td>6.2%</td>
<td>9.6%</td>
<td>6.5%</td>
<td>1.5%</td>
<td>-4.4%</td>
<td>14.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>1.3%</td>
<td>6.8%</td>
<td>2.7%</td>
<td>0.8%</td>
<td>1.4%</td>
<td>-0.8%</td>
<td>-0.8%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">
C-Durables</td>
<td>2.0%</td>
<td>-0.8%</td>
<td>1.7%</td>
<td>11.8%</td>
<td>4.4%</td>
<td>10.7%</td>
<td>8.2%</td>
<td>-2.5%</td>
<td>-6.5%</td>
<td>&nbsp;--</td>
</tr>
<tr class="odd">
<td class="firstcol">
C-Non-durables</td>
<td>-0.3%</td>
<td>0.6%</td>
<td>0.9%</td>
<td>5.1%</td>
<td>0.8%</td>
<td>-0.2%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>&nbsp;--</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate</td>
<td>1.4%</td>
<td>-1.4%</td>
<td>0.6%</td>
<td>2.4%</td>
<td>1.6%</td>
<td>5.7%</td>
<td>7.9%</td>
<td>4.0%</td>
<td>-0.5%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>1.5%</td>
<td>3.8%</td>
<td>2.6%</td>
<td>7.3%</td>
<td>5.5%</td>
<td>0.2%</td>
<td>-11.6%</td>
<td>0.1%</td>
</tr>
<tr>
<td colspan="11" class="firstcol">Main
Euro-Area
Countries and UK IP in MFG</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Jan<br>
10</td>
<td>Dec<br>
09</td>
<td>Jan<br>
10</td>
<td>Dec<br>
09</td>
<td>Jan<br>
10</td>
<td>Dec<br>
09</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">MFG Only</td>
<td>Jan<br>
10</td>
<td>Dec<br>
09</td>
<td>Nov<br>
09</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q:4<br>
Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany:</td>
<td>0.9%</td>
<td>-1.2%</td>
<td>0.9%</td>
<td>2.5%</td>
<td>-8.3%</td>
<td>9.3%</td>
<td>5.2%</td>
<td>3.6%</td>
<td>-5.7%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: <br>
IPxConstruct'n</td>
<td>1.6%</td>
<td>-0.2%</td>
<td>0.8%</td>
<td>8.8%</td>
<td>1.8%</td>
<td>6.0%</td>
<td>5.1%</td>
<td>3.5%</td>
<td>-1.8%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>2.8%</td>
<td>0.2%</td>
<td>0.9%</td>
<td>17.0%</td>
<td>9.4%</td>
<td>12.1%</td>
<td>9.2%</td>
<td>0.0%</td>
<td>-5.5%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-3.0%</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>-14.1%</td>
<td>-4.7%</td>
<td>-6.6%</td>
<td>1.2%</td>
<td>-1.6%</td>
<td>-2.4%</td>
<td>-11.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK: EU
member</td>
<td>-0.8%</td>
<td>0.9%</td>
<td>0.1%</td>
<td>0.9%</td>
<td>4.1%</td>
<td>-0.4%</td>
<td>2.0%</td>
<td>0.2%</td>
<td>-2.0%</td>
<td>4.0%</td>
</tr>
</tbody>
</table>
</body></html>

In a shocker of a report EMU IP ratcheted up much more than expected in January and the December reading got a boost due to revision as well. As a result industrial output now is growing 1.5% Yr/Yr in all of EMU. It is the first Yr/Yr [...]

EMU IP Sees Light Of Day- Posts Yr/Yr Growth

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.

260427T3.jpg

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

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

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

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Asia

Economic Letter from Asia: Not Just About the Strait

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**The Distributive Trades Survey**

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

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

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

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

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

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

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

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

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

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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