Haver’s data services are provided through the DLX platform; delivering tools for data management, visualization, modeling and publishing. DLX is designed to increase productivity and integrates with Excel, PowerPoint, and major statistical software packages; MatLab, R, Python, SAS, E-views and Stata. DLX component application DLXVG3 offers precision graphics, publishing, analytic tools, and easy navigation for all Haver databases.

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Chart and compare multiple data series with accompanying data table of values

Advanced functions (growth rates, moving averages, aggregation, seasonal adjustment)

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Excel and PowerPoint direct export and complete integration (dynamic spreadsheets and presentations update on a click)

DLXVG3

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DLX Add-ins for all versions of Excel provide instant data updates of entire workbooks

Use DLXVG3 to locate data series codes from within any file, easily creating new spreadsheets for analysis

Edit date ranges, archive data, apply functions

Excel Spreadsheet Add-ins

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Haver offers timely, accurate, and professionally supported data via an update service, meeting the strictest demands of the institutional research community

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All database updates retrieve only the data series that have changed and send only the data points that have been updated; including revisions

Timely Updates

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Haver supports a DLX API permitting clients to leverage and build processes with DLX data

Database Compatibility

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Data Link Express

Platform Independent site delivering DLX Databases across any workstation or device.

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HaverView

[Matlab](http://matlab.com) by The MathWorks lets you access, visualize, and analyze historic time-series data to identify patterns or uncover complex relationships. From within a single environment you can:

- Access data from multiple sources including files, spreadsheets, databases, data providers, and the Web
- Store data in financial time-series objects to simplify data management, data transformation, missing-data handling, and date-math calculations
- Perform technical analysis with moving averages, oscillators, stochastics, and indices
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- Customize your analysis environment with advanced functionality from signal processing, statistics, or econometrics

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MATLAB

[Stata Data Analysis and Statistical Software](https://www.stata.com) by StataCorp LP is an integrated statistical package designed for researchers of all disciplines. It provides the ability to do data analysis, data management and graphics and has features such as multiple imputation, factor variables, GMM, competing-risks regression, state-space modeling, predictive margins, and more.

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Stata

[SAS](https://www.sas.com) provides an integrated environment for predictive and descriptive modeling, data mining, text analytics, forecasting, optimization, simulation, experimental design and more. From predictive analytics to model deployment and process optimization, SAS provides a range of techniques and processes for the collection, classification, analysis and interpretation of data to reveal patterns, anomalies, key variables and relationships, leading ultimately to new insights and better answers faster.

[SASEHAVR](http://support.sas.com/documentation/cdl/en/etsug/67525/HTML/default/viewer.htm#etsug_sasehavr_gettingstarted01.htm) is a seamless interface between Haver and SAS data processing that enables SAS users to read economic and financial time series data that reside in a Haver Analytics DLX (Data Link Express) database. [SASEHAVR](http://support.sas.com/documentation/cdl/en/etsug/67525/HTML/default/viewer.htm#etsug_sasehavr_gettingstarted01.htm) requires both SAS/ETS and Base SAS Software.

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[RATS (Regression Analysis of Time Series) Econometric Software](https://estima.com) by Estima is a leading econometrics and time-series analysis software package. It provides ability to do linear and non-linear least squares, forecasting, SUR and ARIMA models and in addition, supports advanced techniques such as GMM, ARCH and GARCH models, state space models, and more.

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RATS

Session 1: Bootcamp Part 1

Visualization with GGPlot2 and data analysis

Session 2: Bootcamp Part 2

Session 3: Univariate Models Part 1

Session 4: Univariate Models Part 2

Session 5: Vector Autoregressions

Session 6: Cointegration and error-correction models

Estimating, evaluating, and forecasting ARIMA models

Understanding the concept of non-stationarity and testing for unit roots

Estimating autoregressions, granger causality tests, and impulse response functions

Understanding the concept of cointegration and testing using the Enger-Granger test

Estimating and forecasting with vector error correction models

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Teaches econometrics and forecasting at the University of Colorado Denver. He has over 15 years of econometric experience in both the private and public sector.

Daniel L. Jerrett, Ph.D.

Abdel M. Zellou, Ph.D.

Bootcamp and Econometric Tools 1 & 2

Econometrics Training: Applied Time Series in R

Session 5: Multivariate Models Part 1

Session 6: Multivariate Models Part 2

Haver partners with Clear Future Consultants to offer a two week immersive online course introducing participants to the power of the Python programming language. This applied hands-on training develops statistical economics skills with a concentration on economics and finance.

Gain proficiency in building modern time-series models in Python through real-world applications. Designed for professionals in both the public and private sector, the course does not require prior experience, assuming only that participants have a basic understanding of regression and statistical concepts.

Proficiency working in Jupyter notebooks and the Python environment

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Remote Training: Applied Time Series in Python

Outlook strengthens for US while it weakens for other major economies

Robert Brusca

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**When the Music Stopped, or at Least the Inflation Progress...**
U.K. inflation on the HICP measure eased to 0.4% in March from 0.5% in February. The month-to-month CPIH measure also rose by 0.4% from 0.5% in February. The CPIH excluding food, energy, alcohol, and tobacco rose by 0.4%, the same as in February. The Bank of England looks at several inflation gauges; it targets HICP, which rose 3.2% year-over-year in March and slowed slightly from its year-over-year pace of 3.4% a month ago. The HICP steps inflation down to 2.7% over six months but then inflation rises at a 3.9% annual rate over three months, not what the Bank of England was looking or hoping for. The CPIH is 3.7% year-over-year, down to 3.3% at an annual rate over six months and up to an even worse 4.4% over three months. The core CPIH that excludes food, energy, alcohol, and tobacco, pretty much all things necessary or fun in life, rose by 4.7% over 12 months, cooled to 3.7% over six months, but then ticked up to 3.8% at an annual rate over three months.

**Inflation makes progress, but not reliably enough**
The bottom line is that inflation, as represented by either six-month or three-month inflation rates, is generally lower than it was over 12 months ago, indicating ongoing progress on the inflation front. However, the progress isn't as substantial as the Bank of England would like to see; there's some backtracking over three months compared to six months that's not what monetary policy is looking for to gain confidence that inflation will continue to fall toward target.

**Diffusion results are mixed**
**Sequential diffusion-** Diffusion calculations applied to the categories in the table showed an inflation over 12 months that exhibits diffusion of 23% compared to inflation rates of 12-months ago. The diffusion measure is the percentage of categories where inflation is accelerating period-to-period. Over six months, diffusion falls to 7.7%. HICP inflation on that comparison fell to 2.7% from 3.2%. The diffusion calculation comes from comparing the inflation rate in each category over six months to the same category over 12 months. If the inflation rate is higher over six months than over 12 months, we count it as acceleration. Acceleration was quite rare over six months, occurring only for housing and household expenditures. However, over three months with the HICP rising to 3.9% compared to 2.7% over six months, diffusion jumped from 7.7% to 61.5%. Being above 50% is critical because it means inflation is accelerating in more categories than it is decelerating and that tends to add more authenticity to the acceleration of inflation over three months. It tells us that the acceleration was not just because of a few rogue categories or several large increases in categories that had a high weight, but rather it's something that's broad-based.

**Monthly diffusion-** Monthly data are more lenient on the diffusion front. In March diffusion is only 38.5% with the month-to-month gain of 0.4%, below a 0.5% rise in February. Inflation is accelerating in March in only 38.5% of the categories. However, in February inflation rose 0.5% compared to 0.1% in January and inflation accelerated in 61.5% of the categories, clearly over half of them. In January with that low inflation print of 0.1%, inflation accelerated in only 30.8% of the categories. Over the last three months, the diffusion data were quite good for two months and moderately bad for one of them. However, when we go back to the table to look at the three-month changes compared to six-month changes, the BOE has that high 61.5% diffusion number staring us in the face.

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**Some impact on the unemployment rate from rate-hiking**
The unemployment rate in the U.K. has begun to tick up; it's up to 4.2% (in January). Three months before that the unemployment rate had been at 3.9%, and three months before that it had been at 4.2%. There are hints here of the unemployment rate moving up, but for now it's only up from its low and it hasn't made any kind of a new cycle high. It does not appear that there would be much in the way of political pressure from rising unemployment on the Bank of England just yet. But the U.K. economy has been struggling and clearly there's a strong constituency for getting interest rates lower and lighting a fire under economic growth. The poor progress on inflation this month is going to make that difficult to do without seeing more inflation progress. For now, the Bank of England seems to be running into the same sort of problem that the Federal Reserve has run into and that is that there has been some very sharp inflation progress, but it has since run into a snag and now monetary policy may be stuck playing a waiting game starring the economic reality.

United Kingdom

U.K. Inflation Cools in March but Not by Enough

Tom Moeller

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Total industrial production increased 0.4% during March, but was unchanged y/y. The gain came after rising 0.4% in February, revised from 0.1%, and falling 0.8% in January, revised from a 0.5% decline. The Action Economics Forecast Survey expected a 0.5% increase in production last month.

Manufacturing production rose 0.5% (0.8% y/y) after increasing 1.2% in February, revised from 0.8%. A 1.1% January decline was unrevised. Mining output fell 1.4% (-2.0% y/y) after a 3.0% February increase. Utilities production rose 2.0% (-3.1% y/y) after a minimally-revised 7.6% in February decline.

In the manufacturing sector, production of durable goods rose 0.3% (1.9% y/y) in March after a 1.3% February rise. Motor vehicle & parts production strengthened 3.1% last month (10.5% y/y) but machinery output weakened 0.4% (-3.1% y/y). Electrical equipment & appliance output eased 0.4% both m/m and y/y. Primary metals production declined 0.7% (-0.6% y/y) while computer & electronic product production improved 0.1% (6.9% y/y). In the nondurable goods sector, factory output rose 0.7% last month (0.1% y/y) after rising 1.1% in February. Chemical production strengthened 0.7% (1.3% y/y) and printing production improved 1.5% (-1.1% y/y). Paper output increased 0.6% (-0.1% y/y) and textile output fell 1.4% (-5.5% y/y). Food, beverage & tobacco production fell 0.5% (-2.1% y/y). Petroleum & coal product output rose 4.8% (5.2% y/y) but apparel production declined 1.7% (-16.4% y/y), off for the fifth straight month.

The major market groups posted mixed results in March. Consumer goods output rose 1.2% (-0.4% y/y) as a 1.0% rise (-1.8% y/y) in nondurable goods production accompanied a 1.9% increase (5.0% y/y) in durable goods output. Business equipment production improved 0.1% last month (1.7% y/y) while construction supplies output fell 1.0% (-0.5% y/y). Materials output held steady (-0.3% y/y) in March.

In special aggregates, output of selected high-tech industries rose 0.3% (14.1% y/y) following a 1.1% February decline. Manufacturing output excluding selected high-tech production rose 0.5% (0.6% y/y) after rising 1.3% in February. Manufacturing output excluding selected high-tech industries and motor vehicle production rose 0.3% (-0.2% y/y) in March after strengthening 1.1% in February.

Total capacity utilization was rose to 78.4% in March from 78.2% in February. A 78.6% utilization rate had been expected. Capacity utilization for manufacturing improved to 77.4% in March from 77.1% in February. The capacity utilization rate for mining fell to 91.0% from 92.3. The operating rate for utilities increased to 69.1% last month from 67.9% in February.

Industrial production and capacity data are located in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

**Economic Uncertainty and the Evolution of Monetary Policymaking** from Fed Vice Chair Philip N. Jefferson is available [here](https://www.federalreserve.gov/newsevents/speech/jefferson20240416a.htm).

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- Rise in production follows upward revision to February gain.
- Factory output improves moderately; utilities production increases.
- Capacity utilization edges higher.

U.S. Industrial Production & Capacity Utilization Improve in March

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Total housing starts declined 14.7% (-4.3% y/y) during March to 1.321 million (SAAR) after rising 12.7% in February to 1.549 million, revised from 1.521 million. It was the lowest level of starts since August of last year and it was 26.7% below the most recent peak of 1.803 million in April 2022. The Action Economics Forecast Survey expected 1.485 million starts in March.

The decline in starts was broad-based last month. Starts of single-family units fell 12.4% (+21.2% y/y) to 1.022 million from 1.167 million in February, revised from 1.129 million. They reached a high of 1.311 in December 2020. Multi-family starts declined 21.7% (-44.3% y/y) in March to 299,000 from 382,000 in February, revised from 392,000. They reached a high of 623,000 in November 2022.

Regional activity was mixed in March. In the Northeast, the level of starts fell 36.0% (-56.8% y/y) to 80,000 after declining 8.1% in February. Starts in the Midwest fell 23.0% (+18.0% y/y) to 157,000 following a 50.0% February increase. Starts in the South weakened 17.8% (-11.0% y/y) to 736,000 after rising 17.8% in February. In the West, however, starts increased 7.1% (48.1% y/y) to 348,000 after declining 5.2% in February.

Building permits declined 4.3% (+1.5% y/y) in March to 1.458 million after rising 2.3% to 1.523 million in February, revised from 1.518 million. It was the lowest level of permits since last July. Single-family permits declined 5.7% (+17.4% y/y) to 973,000 in March following a 1.1% February increase. Multi-family permits weakened 1.2% (-20.2% y/y) to 485,000, after rising 4.9% in February.

The housing starts and permits figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Single-family and multi-family starts reverse February gains.
- Starts decline throughout most of the country.
- Building permits fall to eight-month low.

U.S. Housing Starts Drop Sharply in March; Building Permits Fall

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The ZEW survey improved as U.S., German and EMU current conditions and macroeconomic expectations (where surveyed) all increased on a month-to-month basis.

Table 1 summarizes the shift with the TEXT reflecting month-to-month changes. On that basis, there were improvements (increased strength) in 15 of 16 surveyed metrics. However, the text COLOR reflects the relative value of the underlying queue ranking series. Only two queue rankings in the table, the U.S. economic situation and German economic expectations in April are above their respective historic medians on data back to 1992 (and, hence, print black in the table). This means most series are still quite weak and, while improving month-to-month, still emerging from sub-normal conditions.

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Of 16 readings, 15 improved month-to-month

Table 2 presents the queue rankings by categories as well as the month-to-month changes in the underlying diffusion readings.

As noted above, only one metric was weaker month-to-month; that was the expectation for short-term interest rates in the EMU. A rate cut is widely expected from the ECB in June. While inflation expectations rose month-to-month, the percentile standings for inflation are still extremely weak. Long-term rate expectations continue to have very low diffusion values as well even though they have crept higher this month.

Stock market expectations remain depressed. The U.S. expectation is the best of the lot with a 20-percentile standing- a standing that is higher 80% of the time. From that, it is clear what these readings mean. Conditions in the U.S. and Europe remain very weak. Yes, there was ‘broad’ improvement this past month but improvement of a miniscule sort. Despite ongoing historically low interest rates, no one is really impressed that these economies are going to be fired up by these low interest rates as the weak stock assessments show you. Or, maybe the trouble is that growth is going to be okay, but stocks are just overpriced and too high-valued?

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Despite strong job growth in the U.S. and a stock market ‘priced for perfection’ (well, that’s part of the problem, in the U.S., isn’t it?), in Washington we have Joe Biden trying to convince everyone that the economy is great! But at the Fed, we have concerns that the economy is on the verge of needing rate cuts to sustain itself and the current low (near a 50-year low) rate of unemployment. What a peculiar period! It does not seem that we have much in the macroeconomic environment that people, investors, and policymakers, including central bankers can agree on. Everything in the U.S. is and has been about spin for some time now. Truth is playing hide-and-go-seek with politics. The beat goes on...

ZEW Indexes Edge Higher; But What Does It All Mean?

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Retail sales rose 0.7% (4.0% y/y) during March after increasing 0.9% in February, revised from 0.6% and falling 0.9% in January, revised from a 1.1% decline. A 0.4% March increase had been expected in the Action Economics Forecast Survey. Retail sales excluding motor vehicles & parts strengthened 1.1% in March (4.3% y/y) following a 0.6% rise, revised from 0.3% and a 0.6% January decline, revised from a 0.8% shortfall. Nonauto sales had been expected to rise 0.5%. Motor vehicle & parts sales weakened 0.7% in March (+2.8% y/y) after a 2.5% gain as unit motor vehicle sales fell 1.9% last month.

Sales in the retail control group, which excludes autos, building materials, restaurants and gasoline jumped 1.1% in March (5.2% y/y) after increasing 0.3% in February, revised from no change. Sales eased 0.1% in January, revised from a 0.3% fall.

Sales of nonstore retailers surged 2.7% in March (11.3% y/y) after rising 0.2% in both of the prior two months. General merchandise store sales rose 1.1% (5.7% y/y) following two months of 0.6% increase. Within that grouping., department store sales fell 1.1% (-2.5% y/y) after declining 0.4% in February. Higher prices were behind the 2.1% gain (-0.7% y/y) in gasoline service station sales as they followed a 1.6% rise. Building materials & garden supply store purchases improved 0.7% (-0.6% y/y) after rising 2.3% in February.

Working lower, sporting goods, hobby shop, book & music store sales fell 1.8% in March (-3.9% y/y) after increasing 0.7% in February. Apparel store purchases weakened 1.6% in March (+1.4% y/y) after rising 0.2%, while electronics & appliance store purchases declined 1.2% (-0.6% y/y), reversing a 1.3% February rise. Furniture & home furnishing store sales fell 0.3% (-6.1% y/y) for the second consecutive month.

Sales improved in the nondiscretionary sales categories. Health & personal care store sales rose 0.4% last month (2.3% y/y) after holding steady in February. Food & beverage store sales rose 0.5% in March (1.4% y/y) after a 0.2% February increase.

Consumer spending at restaurants & drinking places improved 0.4% last month (6.5% y/y) after a 0.5% February rise.

Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Surge in core sales is led by nonstore retailers.
- Vehicle sales decline.
- Gasoline sales jump with higher prices.

U.S. Retail Sales Gain Is Surprisingly Strong in March

Winnie Tapasanun

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The Empire State Manufacturing Index of General Business Conditions was at -14.3 in April, up from -20.9 in March but down from -2.4 in February, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of -7.0 had been expected in the Action Economics Forecast Survey. The April weaker-than-expected result, down from a positive 10.8 reading in April 2023, indicated that the business activity in New York State contracted for the fifth consecutive month but at a less severe pace compared to March. The percentage of respondents reporting an increase in general business conditions was 23.8% in April, down from 25.1% in March; the percentage reporting a decrease was 38.1%, down from March’s 46.0%. The latest survey was conducted between April 2 and April 9.

The headline index reflects the answer to only one question concerning general business conditions and is not calculated from the components. Haver Analytics constructs an ISM-adjusted series, which is comparable to the ISM manufacturing index. This calculated index rebounded to 46.0 in April after a 2.9-point decline to 45.5 in March, indicating contraction for the fifth successive month but at a slightly less severe rate; it was up from a low of 39.7 in January but down from 54.9 in April 2023. A level of 50 is the breakeven point between expansion and contraction.

In the latest survey, the new orders index increased to -16.2 in April after a 10.9-point drop to -17.2 in March, remaining negative for the seventh straight month; it was an improvement from a low of -49.4 in January. A 24.3% of respondents reported higher orders in April while an increased 40.5% reported lower orders. The shipments index decreased to -14.4 in April, the fourth negative reading in five months, from -6.9 in March, but it was up from a low of -31.3 in January.

The unfilled orders index rebounded to -10.1 in April from -10.9 in March, albeit remaining in a negative territory for the 12th consecutive month and signaling that unfilled orders continued to fall. The index reached a low of -24.2 in January. The inventories index recovered to a positive 3.4 reading in April from -12.9 in March, indicating inventories expanded for the first time since November. Meanwhile, the delivery times index fell to -7.9 in April from -1.0 in March, with 9.0% of respondents reporting higher delivery times and 16.9% of respondents reporting lower delivery times.

Labor market conditions remained weak this month. The number of employees index increased to -5.1 in April following a 6.9-point drop to -7.1 in March, showing employment contracted for the sixth consecutive month but at a slightly less severe pace. The index was up from a low of -10.1 in March 2023. A 12.7% of respondents reported increases in employment in April while an increased 17.7% reported lower employment. The average workweek fell to -10.6 in April, the lowest reading since August 2023, on top of a 5.7-point drop to -10.4 in March, remaining below a high of 24.3 in September 2021.

Inflation pressures increased this month. The prices paid index rose to 33.7 in April, the highest level since May 2023, after declining to 28.7 in March. The index was up from a low of 16.7 in December 2023 but significantly down from a high of 86.4 in April 2022. An increased 36.0% of respondents reported higher prices paid in April while only 2.2% reported lower prices paid. The prices received index declined to a three-month-low 16.9 in April after rising to 17.8 in March. The index was up from a low of 3.9 in July 2023 but well below 56.1 in March 2022. A 20.2% of respondents reported higher prices received in April while a lessened 3.4% reported lower prices received.

Expectations for the next six months generally improved in April but remained subdued. The index for future business conditions declined to a four-month-low 16.7 in April after increasing to 21.6 in March, with 37.4% of respondents expecting business conditions to improve in the next six months. Growth expectations for employment (4.5 vs. 18.3), new orders (17.9 vs. 29.3) and shipments (21.8 vs. 33.7) weakened in April vs. March but remained in a positive territory. Capital spending plans remained soft, with expectations for capital spending falling to a four-month-low 6.7 in April from 11.9 in March. Expected prices paid rose to 40.4 in April, the highest level since February 2023, from 35.6 in March, while expected prices received declined to 29.2 from March’s 32.7.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- General Business Conditions Index -14.3 in Apr. vs. -20.9 in Mar., showing contraction for the fifth straight month.
- Negative numbers for new orders (-16.2), shipments (-14.4), unfilled orders (-10.1), and employment (-5.1), but positive reading for inventories (3.4), the first positive since Nov. ’23.
- Inflation pressures increase, w/ prices paid rising to 33.7, the highest since May ’23.
- Optimism on the six-month outlook remains positive but subdued, w/ Future Business Conditions Index down to a four-month-low 16.7.

U.S. Empire State Manufacturing Index Rebounds to a Still-Negative Level in April

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The Housing Market Index compiled by the National Association of Home Builders/Wells Fargo remained at 51 (+13.3% y/y) in April. It was only the second time the index surpassed the break-even point of 50 since last July. The index stands below a July 2023 high of 56 and a November 2020 peak of 90.

The average rate on a 30-year fixed rate mortgage increased to 6.88% last week compared to 6.82% in the prior week, down from a high of 7.79% in the last week of October, according to Freddie Mac.

The single-family sales measure rose 1.8% (11.8% y/y) to 57 this month from 56 in March. It was the highest reading since August 2023. The prospective sales index in six months fell 3.2% (+20.0% y/y) to 60 from 62 in March. The traffic of prospective buyers’ index increased 2.9% (12.9% y/y) to 35 in April from 34 in March. The reading was increased from a November low of 21 but remained below the November 2020 high of 77.

Housing performance across the country was mixed in April. In the Northeast, the index rose 6.6% (47.7% y/y) to 65 from 61. The index remained above the December 2022 low of 32. In other regions of the country, the index for the Midwest rose 2.0% (25.0% y/y) to 50 from 49 in March. In the South, the index fell 1.9% to 51 (+2.0% y/y) from 52 in March and stayed below the high of 90 in November 2020. The index in the West rose 8.9% (22.5% y/y) to 49 from 45 in March. The index hit a low of 28 in November.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low." The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. The regional indexes run back to December 2004.

These data are included in Haver's **SURVEYS** database.

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- Overall index remains at highest level since July 2023.
- Component movement is mixed.
- Regional indexes diverge.

U.S. Home Builders Sentiment Holds Steady in April

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The chart shows that European Monetary Union industrial production in manufacturing has been declining across sectors on a year-over-year basis for quite some time. Intermediate goods output declines extended back to April 2022; for consumer goods the declines occurred early in 2023 and have persisted; for capital goods the declines occurred around July 2023 and with one spike reversal the declines have come back vigorously. Capital goods output is currently showing the deepest year-on-year decline in output of any manufacturing sector. The annual trends are clear and quite negative. However, the short-term trends are different, much more optimistic.

**Sequential growth rates in IP**
From 12-months to six-months to three-months, EMU output excluding construction shows a turnaround in progress. Output falls 7.1% over 12 months, falls at a 2.8% annual rate over six months, and falls at just a 2.4% annual rate over three months as trends make steady improvement. Sequentially from 12-month industrial production is showing signs of diminished declines. This trend holds for manufacturing as well where output declines at 7.5% over 12 months, while over three months and six months the pace of decline is reduced to under 1%. We see improvement in two of three sectors as well. Consumer goods output echoes this improvement with year-over-year decline in output at 6.3%, a six-month decline at a 4.2% annual rate, and a three-month decline at a 2.3% annual rate. Intermediate goods show output is gaining momentum culminating in an output increase over three months. Twelve-month intermediate goods output falls by 2.9%, then rises at a 0.4% pace over six months, and then increases at an annual rate of 6.3% over three months. The fly in the ointment for short-term trends in manufacturing is capital goods. Capital goods output declines at a 9.7% annual rate over 12 months; over six months it continues to decline at a rapid pace although slightly diminished, falling at a 9.1% annual decline rate, and then over three months, the rate of decline accelerates sharply to -17%. These trends create a confusing picture for output where there continues to be long-term weakness punctuated by short-term improvement in consumer and intermediate goods but held back by ongoing and severe weakness in capital goods output.

On a quarter-to-date basis (QTD), weakness dominates the overall statistics with a 6.8% annual rate decline in eurozone output excluding construction. Manufacturing is even more severely crimped with a decline at an 11.5% annual rate. The manufacturing result is driven by a 34.7% annual rate decline in the output of capital goods even though intermediate goods output increases at a 7.3% annual rate and consumer goods output falls at only a 0.5% annual rate. In the quarter-to-date, manufacturing trends are weak but also are represented by considerable variety.

**Country patterns in manufacturing**
Across 13 of the earliest members of the European Monetary Union in February, we see manufacturing declines in only three: Belgium, Spain, and Greece. In January, eight countries show declines in output. In December, only four showed declines; those included Germany, Finland, Spain, and Portugal. Quarterly trends across countries show some signs of progress. Ten countries showed declines in industrial production over 12 months; that count was reduced to nine countries over six months and reduced further to five countries over three months. The median result across these countries is for a decline in output of 2.4% over 12 months, a decline of 2% output at an annual rate over six months and an increase in output at a 1.6% annual rate over three months. The country level data support a more optimistic reading of trends. Even so, the quarter-to-date comparisons eight of these thirteen countries with output declining in the first quarter.

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**The road ahead**
Manufacturing in the European Monetary Union continues to be spotty. Output in the largest economies also continues to be erratic. Inflation is starting to be contained, but results from the U.S. show that the drop of inflation that seemed so promising over the past year and a half has now slowed and may even be exhibiting increasing tendencies over shorter horizons. It's unclear if the trends in the U.S. have any import for what we should expect in the EMU. For the moment, there's some optimism about monetary policy and the prospect for the European Central Bank to cut rates in June. 

**The environment**
However, there's also ongoing concerns about geopolitical risks and the failure of the U.S. to continue to provide substantial and military support to Ukraine amid its own political divisions. Iran just executed a significant attack on Israel launched from its own territory the first attack of its type in recent years. Although the missile attack was thwarted, it sends a chilling message across the Middle East and it's unclear what its impact will be on the other ongoing internal battle between the Israelis and Hamas, particularly in Gaza. The global situation continues to churn with a lot of geopolitical uncertainty and with a large dose of economic uncertainty. In the United States, elections are queued up for November, a half-year away. Political divisions within the United States run at epic proportions. The stakes will certainly be high this November with both parties launching campaigns that could be characterized as ‘no holds barred.’ This is not the best environment in which to try to handicap what's going to happen with monetary policy; however, that continues to be an issue in the United States as well as globally. Clearly the best solution is to take it a day at a time.

Europe

A Confusing Picture of EMU Production Trends

Andrew Cates

**The IMF’s global economic outlook**
One of the most notable themes that emerged from the IMF’s latest economic outlook this week is the resilience of the world economy in recent months. This resilience has led to significant upward revisions to its GDP outlook for several large economies compared to the projections made last October (see chart 1). The most notable upgrades were made to the US and to several large emerging market economies, including India and China. These were partially offset, however, by some small downgrades to the outlook for Europe and Japan. The factors driving this global outperformance were diverse but mostly revolve around loose fiscal policy, big drawdowns in household savings, and lower inflation, fostered, in turn, by supply-side improvements.

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**Geopolitical risk and oil**
The extent to which these forecasts are now at risk will hinge on several factors but increasing geopolitical instability in the Middle East is clearly one of them. As chart 2 below indicates, a generic indicator of global geopolitical risk has spiked sharply higher over the past few days, largely thanks to the escalation of tensions between Israel and Iran. The most important channel through which this could generate economic instability is higher oil prices. But heightened risk aversion in the Middle East, and more broadly among global investors, could also hamper economic activity.

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**Global oil supply**
Global oil prices have, so far, remained well-behaved against this backdrop. However, there is no assurance that this stability will continue if geopolitical risks escalate. Iran plays a crucial role in the global oil market due to its significant oil reserves and production capacity. More broadly, the Middle East holds nearly half of the world's proven oil reserves (see chart 3) and accounted for 33 percent of global oil production in 2022. Therefore, any disruptions or changes in the region's oil production or exports could significantly affect the global oil market, influencing both supply and prices worldwide.

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**Oil prices, inflation and monetary policy**
While oil prices have remained relatively stable in recent days, they have generally been on the rise since the beginning of the year. This increase has been a major factor in slowing down or even reversing disinflationary trends in many countries. Additionally, it has led to reduced expectations for looser monetary policies, especially in the US. It is certainly no coincidence, against that backdrop, that oil prices appear to have enjoyed a close lead relationship with US Treasury yields over the past few months as well (see chart 4).

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**US financial conditions**
A major challenge for central banks in adjusting monetary policy is the feedback loops between economic activity, financial conditions, and monetary policy itself. For instance, earlier expectations of a more lenient monetary policy contributed to looser financial conditions in the US. This, in turn, may have provided greater support to the US economy than the Federal Reserve had anticipated (see chart 5). This indicates that while many metrics suggest that US monetary policy is stringent, indicators of financial conditions present a more nuanced view.

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**China’s economy**
Finally, and on a more positive note, this week’s dataflow for China has offered a more upbeat take on recent economic developments. For instance, GDP in Q1 2024 grew by 5.3% y/y, up from 5.2% in the Q4 2023, and significantly above expectations which were centered on a growth rate of 4.8%. A closer examination shows that net trade significantly boosted economic growth over the past three months, thanks to robust growth in export volumes during January and February. Whether this strength will be sustained, however, remains to be seen not least against the more risky global economy backdrop discussed above.

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Investors have grown increasingly cautious about the economic outlook in recent days, partly thanks to heightened geopolitical instability in the Middle East. That Fed Chair Powell has also expressed greater concern about the US inflation outlook has not helped, not least as higher oil prices (and the resilience of the US economy) had already been unsettling investors’ inflation expectations. The timing of this week’s publication of a more optimistic economic outlook from the IMF (see chart 1) also appears a little unfortunate. The extent to which those forecasts may be jeopardized will arguably now hinge on the interplay between geopolitical instability, oil prices, inflation and monetary policy (see charts 2, 3, 4 and 5). It is noteworthy, nevertheless, and against these considerations, that China’s economy has also been punching more positively according to some additional data that were published this week (see chart 6).

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Charts of the Week: Geopolitics, Oil, the IMF and China

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