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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

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Bootcamp and Econometric Tools 1 & 2

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Remote Training: Applied Time Series in Python

Latest PMIs show US losing momentum while RoW is gaining momentum

Tom Moeller

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Retail gasoline prices for all grades declined to $3.73 per gallon (+2.3 y/y) in the week ended May 13 from $3.77 in the prior week. It was the lowest price in five weeks and compare to a low of $3.18 in the middle of January. The recent high stands at $4.00 per gallon in the third week of September, and the all-time high was $5.11 in the week ended June 13, 2022. Retail prices for on-highway diesel fuel slipped to an average $3.85 per gallon (-1.3% y/y) last week from $3.89 in the prior week. A recent low of $3.77 per gallon occurred in the week ended July 3, 2023.

The average price of West Texas Intermediate crude oil declined to $79.32 per barrel (+10.1% y/y) in the week ended May 7 from an average $81.07 in the prior week. It remained well above its low of $69.37 per barrel in the week of June 30, 2023. The price remained below a high of $91.45 in the week of September 29, 2023. The all-time high was seen in the week of July 4, 2008 at $142.46 per barrel. Yesterday, the price of West Texas Intermediate crude oil was $79.12 per barrel. The price of European Brent crude oil declined to $83.36 per barrel (+9.9% y/y) in the week ended May 10 compared to $84.82 in the prior week. The price of Brent has recently ranged from a low of $73.55 in the week ended June 30, 2023 to a high of $127.40 in the week ended June 10, 2022. Yesterday, the price was $83.06 per barrel.

Natural gas prices strengthened to an average of $2.00/mmbtu (-4.8% y/y) in the week ended May 10 from $1.64/mmbtu in the prior week. These compare to a high of $3.20 averaged in the week of October 13, 2023. Yesterday, the natural gas price was $2.11/mmbtu.

Gasoline demand fell 4.0% y/y in the four weeks ended May 3 after declining 3.6% y/y in the four weeks ended April 26. Demand for all petroleum products was little changed y/y for the second consecutive four-week period. Crude oil input to refineries rose 0.3% y/y in the four weeks ended May 3, the same as during the previous four week period.

Gasoline inventories rose 3.8% y/y in the week of May 3 after rising 1.9% y/y in the prior week. Inventories of residual fuel oil fell 14.8% y/y in the week of May 3 after declining 9.8% y/y in the previous week. Crude oil inventories, including the Strategic Petroleum Reserve, improved 0.3% y/y in the week of May 3, the same as in the prior week.

Measured in days’ supply, gasoline inventories eased w/w to 26.4 days in the week of May 3. The recent low was 23.4 days in the week of June 30, 2023. Crude oil inventories fell to 29.0 days of supply in the week of May 3 from 29.2 days in the prior week. These compare to a recent high of 31.9 days in the week of March 3, 2023 and a low of 25.0 days in the week of September 1, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices fall for third straight week.
- Crude oil costs decline sharply.
- Natural gas prices strengthen.

U.S. Gasoline & Crude Oil Prices Decline in Latest Week

Robert Brusca

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The economic situation, surveyed by the ZEW's survey, showed improvement in the euro area to -38.6 in May from -48.8 in April. The German survey improved to -72.3 in May from -79.2 in April. However, the economic situation in the United States lost some of its luster, with its index falling to 40.9 in May from 48.5 in April.

The survey for expectations in Germany improved to 47.1 in May from 42.9 in April. For the U.S., macroeconomic expectations remained negative at -13 in May, weaker than the -0.7 reading in April.

Inflation expectations and showing moved away from the view is an inflation was continuing to fall as the euro area continued to post a negative value of -45.6 in May, but that was stronger than the -49.1 in April. Germany's reading rose to -41.0 in May from -47.8 in April. The reading for the U.S. was much less changed, at -41 in May compared to -42.6 in April.

On the back of those expectations, short-term interest rates in the euro area were less intensely forecasted to fall as the headline reading of -80.5 in May rose from -84.6 in April. In the U.S., the reading rose to -55.2 in May from -63.7 in April.

Long-term interest rate expectations continue to drop, however. In Germany, expectations for long-term rates fell to -33.5 in May from -26.9 in April. In the U.S., the reading edged lower to -28.3 in May from -26.5 in April. The outlook for lower long-term interest rates is still intact.

Stock market performance in May is stronger in the U.S., euro area, and Germany. This is despite some minor degradation in the assessment for current conditions and expectations in the U.S. Euro area stock market expectations showed its diffusion value of 23.3 in May, up from 7.2 in April. The German reading rose to 18.7 in May from 3.8 in April. The U.S. index in May rose to 21.5 from 9.9 in April. All-in-all, the ZEW survey participants are becoming much more constructive on the stock market as they become modestly and more constructive on the bond market.

Despite these various shifts in the survey, the percentile standings of most of these indicators remain extremely weak: for example, economic situation assessments stand in the 41st percentile for the euro area, the 17th percentile for Germany but manage to rise above the neutral mark of 50 to the 58.1 percentile in the U.S.  Economic expectations in Germany have crept up to a 68.8 percentile reading compared to only a 32.3 percentile reading in the U.S.  Inflation expectations everywhere remain low with the euro area and the U.S. having percentile standings below their 10th percentile, while in Germany they post a still-low value in its 14th percentile- all those are very low readings. Short-term interest rate expectations in the euro area have been lower only 4.1% of the time; in the U.S. they've been lower only 9.3% of the time. Long-term rate expectations have been lower in Germany only 2.2% of the time and in the U.S. only 1.9% of the time on the ZEW survey metric. Participants continue to look for extremely low long-term interest rates. The stock market expectations, while up sharply in the month, have only reached the 24th percentile for Germany, the 12th percentile for the euro area and the 38th percentile for the U.S.  On balance, stock market expectations haven’t reached their median values in any of these areas and although they've improved the outlook for their performance is still muted.

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ZEW Survey Shows Improvements in German Expectations and Conditions

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) fell 0.9% (+3.3% y/y) during the four weeks ended May 10, 2024, after rising during April. The index remained 20.1% below the cycle peak in the second week of March 2022. During most of that period of time, U.S. factory output has been little changed.

Prices in the miscellaneous group fell 3.5% during the last four weeks and weakened 0.5% y/y. Plywood prices fell 7.8% in four weeks, rising 2.3% y/y. The cost of natural rubber fell 10.3% in four weeks but rose by roughly one-quarter y/y.

Prices in the crude oil & benzene group were off 2.7% (+7.7% y/y) in the last four weeks. The cost of West Texas Intermediate crude oil fell 8.5% in four weeks to $78.64 per barrel, up 9.3% y/y. Prices hit a low of $70.42 in the third week of December. The cost of the petro-chemical benzene, used for making plastics & synthetic fibers, increased 3.0% (+23.3% y/y) in four weeks. Excluding crude oil, the industrial commodity price index eased 0.5% (+2.9% y/y) in the latest four-week period.

Textile group prices declined 1.7% (-1.0% y/y) in the latest four weeks but had been rising since their low in the second week of November. Cotton prices weakened 10.6% (-10.5% y/y) in the last four weeks, falling to the lowest level since December 2020. The cost of burlap posted a 0.7% (7.8% y/y) four-week increase.

Offsetting these declines, metals group prices increased 4.0% (9.7% y/y) over the most recent four weeks. Zinc prices rose 8.0% (10.1% y/y) while tin prices improved 5.2% in four weeks, strengthening 22.2% y/y. Copper scrap prices increased 5.1% (15.1% y/y) in the last four weeks and aluminum prices improved 3.9%, rising 9.7% y/y. Lead prices increased 2.6% (2.4% y/y) in four weeks but the cost of steel scrap eased 0.5% (+1.5% y/y).

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Lumber costs continue to weaken.
- Crude oil prices fall and reverse earlier gains.
- Cotton prices exhibit notable decline.
- Most metals prices strengthen.

FIBER: Industrial Commodity Prices Decline in Latest Four Weeks

Tian Yong Woon

In this week's letter, we examine monetary developments in Asia. In particular, we take stock of the latest decisions by central banks in the region and delve into the possible motivations behind them. We find that while the Fed's policy trajectory remains a key policy focus, their recent actions have also been driven by domestic factors. Furthermore, we also find their policy priorities to be wide-ranging, with some aiming for currency stability, while inflation remains the focal point for others.

In Japan, recent bouts of yen appreciation have fueled speculation about potential currency intervention by the authorities. Also, the Bank of Japan’s latest summary of opinions indicates an unexpected shift from some members towards a more hawkish stance. In South Korea, persistently high inflation and potential improvements to Q2 GDP growth serve as reasons for the central bank to keep rates higher for longer. In Indonesia, the central bank’s recent surprise rate hike has drawn attention to its focus on currency stability and its broad range of policy tools. In Thailand, the central bank remains committed to maintaining its policy rates, despite ongoing governmental pressure for looser policy. Finally, in Malaysia, we acknowledge the central bank's consistent approach to policy rates and explore recent developments concerning the ringgit.

**Japan**
The yen experienced sudden bouts of appreciation in early May, with the USD/JPY exchange rate having fallen by about 3% through May 2-3 (Chart 1). The moves spurred speculation that Japanese authorities had stepped in to support the yen following its prolonged spell of weakening this year. To infer possible episodes of currency market intervention, some market participants have turned to analyzing the Bank of Japan’s (BoJ) daily current account data for clues. Specifically, market participants looked at the BoJ’s daily net receipt of funds and contrasted them with broker-estimated figures to estimate possible currency intervention activity. Regardless, and despite its sporadic moves, the yen seems to have resumed its previous trend toward weakening. This has been fueled in part by the still-wide yield differentials between Japan and other major economies. 

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Homing in on the prospective path of BoJ policy, we saw some hawkish indications from the central bank’s April Summary of Opinions released last week. For one, members flagged the possibility of a higher future policy interest rate than currently factored in by the market. There was also some discussion on having moderate interest rate hikes as an option to contain shocks from rapid policy changes. Additionally, members noted that the BoJ’s pace for monetary normalization may increase, should inflation come in higher than expected. Relatedly, the report also highlighted a possible resurgence in price pressures owing to increased crude oil prices, wage hikes, and yen depreciation. We have not yet seen, however, a conclusive inflation re-acceleration just yet in Japan, as shown in Chart 2. Furthermore, and if Tokyo inflation prints are of any indication of nationwide readings, it may be that price pressures in Japan cool in April instead.

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**South Korea**
While Japan veers towards more tightening, albeit gradually, the prospective path of monetary policy in South Korea is quite different. Markets are re-evaluating the expected timing of Bank of Korea (BoK) rate cuts after Governor Rhee’s recent remarks that the “situation has changed since April”. Apart from Fed-related considerations, the BoK faces two-pronged justifications to hold off monetary easing for now. Firstly, South Korea’s CPI inflation, whilst moderating, remains some way above the BoK’s 2% target, having come in at 2.9% in April. Secondly, South Korea’s economic growth is arguably healthy, with GDP growth having exceeded consensus estimates to firm to 3.4% y/y in Q1. More recent indications, including South Korea’s double-digit y/y export growth in April, suggest possible lifts to growth in the current quarter as well.

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**Indonesia**
Moving to Indonesia, Southeast Asia’s largest and most populous economy, its central bank’s surprise 25 bps rate hike in late April stands out as a notable recent development. Unlike many of its Asian peers, that prioritise inflation targeting, Indonesia’s central bank (BI) is legally mandated to protect the stability of its domestic currency. It was for such purposes, among others, that BI decided to raise rates in April. Apart from interest rate-related measures, BI also adopts a “triple intervention” approach in the currency (FX) markets to stabilize the rupiah during bouts of volatility. Specifically, BI achieves this by trading in the spot FX market, the domestic non-deliverable forward (DNDF) market, and the secondary local currency-denominated government bond market. Looking at recent moves, we have seen some interim recovery and stabilization of the rupiah, especially against the dollar (Chart 4). With that said, some of the rupiah’s recovery against the dollar may have been driven by US-side moves, following recent communications from the Fed. Looking ahead, BI Governor Warjiyo has indicated that further BI rate hikes are not needed. 

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**Thailand**
Thailand’s central bank (BoT) kept its policy rate unchanged at 2.5% for the third straight meeting in April. The choice to hold policy rates was not unanimous, with two of seven committee members having voted for a 25 bps cut instead. Voices calling for rate cuts extend beyond the Monetary Policy Committee, with Thailand’s Prime Minister urging for easier monetary policy for several months now. Also, Thailand’s new Finance Minister has added to the pressures, having recently called for monetary and fiscal policies to move in “the same direction”. The BoT has so far resisted the government’s pressures, citing monetary policy’s limited effectiveness at solving structural problems in the Thai economy. Furthermore, while Thailand’s inflation remains low, it has been picking up, finally turning positive in April following six prior months of price declines (Chart 5). Also, the re-emergence of outbound travel from China, traditionally one of Thailand’s major tourism revenue sources, points to a possible pickup in external-driven demand ahead.

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**Malaysia**
We shift last to monetary policy developments in Malaysia. The central bank (BNM) expectedly left its policy rate unchanged at 3% last Thursday, citing that its stance “remains supportive” of the Malaysian economy. Looking ahead, many analysts continue to expect BNM to keep its policy rate unchanged over the medium-term, partly due to a stable inflation outlook. Relatedly, the government’s recent service tax (ST) hikes appear to have had limited effects on prices thus far. This is understandable since ST hikes predominantly apply to non-essential services. There remains some concern, however, regarding the stability of the ringgit, which has weakened to just shy of 4.8 per dollar this year. BNM has assessed that the currency currently “does not reflect” the economic fundamentals and growth prospects of Malaysia. Instead, the ringgit’s heightened volatility is attributed to external drivers, such as the monetary policy paths of major economies.

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Asia

Economic Letter From Asia: Beyond the Fed

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For the first seven months of FY 2024, the U.S. Treasury Department reported a U.S. government budget deficit of $855.2 billion compared to a $924.9 billion deficit in the first seven months of FY 2023. For April alone, the budget surplus of $209.5 billion compared to a $176.2 billion surplus twelve months earlier. The Action Economics Forecast Survey expected a $270 billion surplus for April.

Overall revenues have increased 10.3% y/y as individual income tax receipts rose 11.4% y/y so far in FY’24. The level of corporate tax receipts rose by roughly one-quarter versus the first seven months of FY’23. Social insurance revenues have risen an improved 6.6% y/y and excise taxes have increased 14.0% y/y so far in FY’24. Customs duties fell 7.4% y/y, continuing the decline since late-2022.

Federal government outlays have increased 5.8% y/y so far in FY’24. Defense spending rose 7.0% so far this fiscal year, about equal to the gain in the first seven months of FY’24. Medicare payments increased 9.1% y/y while Social Security outlays rose 8.7% y/y after rising 10.5% in the first seven months of FY’23. Interest payments strengthened 41.4% y/y so far in FY’24, about as they did last year. Health program spending have edged 0.8% higher this year, while income security outlays fell 16.3% this fiscal year as they did in the first seven months of FY’23.

Haver's data on Federal Government receipts & outlays are contained in **USECON**. The expectations figure is in the **AS1REPNA** database.

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- Personal income tax receipts surge.
- Corporate tax payments strengthen.
- Outlay growth moderates with fewer income security payments.

U.S. Government Budget Deficit Shrinks So Far in FY 2024

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The National Association of Realtors’ Fixed Rate Mortgage Housing Affordability Index fell 2.0% in March (-2.3% y/y) to 101.1 after declining 2.4% in February to 103.2. The index remained down 43.5% from its recent peak of 179.0 in April 2020. Its all-time high of 213.3 occurred in January 2013. The Housing Affordability Index (HAI) equals 100 when borrowers’ median income qualifies for an 80% mortgage on a median-priced existing single-family home.

The average mortgage payment of principal & interest in March rose 2.8% (7.7% y/y) to $2,093 from $2,036 in February. The median price of an existing single-family home increased 2.4% (4.7% y/y) to $397,200 in March after rising 1.3% in February. The monthly mortgage outlay equaled 24.7% of median family income versus 24.2% in February, down from a high of 27.4% in October. The monthly mortgage rate of 6.90% compared to 6.86% in February. It remained below a high of 7.70% in October. Median family income improved 0.7% (5.2% y/y) to $101,556 from $100,876 in February.

The Housing Affordability Index fell throughout the country in March. In the Midwest, affordability declined 4.3% (-4.9% y/y) to an index level of 132.8. The home affordability Index in the Northeast fell 2.4% (-7.4% y/y) to 102.0. In the South, the index fell 1.5% (-0.6% y/y) to 101.6. In the West, the affordability index was off 1.5% (-3.9% y/y) to 72.5.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY** and **DAILY**.

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- Principal payments rise with higher home prices.
- Mortgage rates are steady.
- Median family income increases.

U.S. Housing Affordability Falls in March

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Japan’s economy watchers index stayed below the breakeven threshold of 50 in April, falling further to 47.4 from a level of 49.8 in March. These numbers compare to a reading of 51.3 in February. Over 12 months, the economy watchers index has fallen by 5.9 points. It made 3.3 points of that drop over six months and 2.8 points of that drop over three months. Taking the April level of the economy watchers index and expressing it as a percentile standing, the level is at 49.8%. A standing below its 50th percentile means it is below its median when ranked among data since April 2003.

The economy watchers subindexes across industries and the other functional categories show slippage (diffusion below 50) for each one between March and April. In addition, all categories weakened in March compared to February except for the reading for eating and drinking places and the reading for employment. And many March diffusion readings are below 50. The economy watchers index is clearly on a run of weakness.

Overall the current index ranks below its historic median as we noted above; components that are below their median values are retailing, manufacturing corporations, and employment. The employment reading is the weakest one in the table with the standing only at its 29.6 percentile. At that ranking, it sits near the top of the lower third of all observations since April 2003. That's an all-too-weak reading for such an important index for the economy.

Sequential changes in the current index show over three months all components are lower on balance except nonmanufacturing firms. Over six months, all components are lower on balance except nonmanufacturing firms and housing. Over 12 months all components are lower on balance except for housing. The Bank of Japan has had some concern about inflation and these concerns have become a bit more two-sided; a weakening economy is not going to allow the BOJ to raise interest rates and to proceed in its objective of returning monetary policy to a range of normalcy. Consumer spending in Japan has been weakening as well. Overall, the economy watchers index fits into a profile of an economy that's weakening rather than strengthening.

**The future index**
The economy watchers index has a future component. This component also weakened in April compared to March and has slipped below a diffusion value of 50, dropping to 48.5 in April from 51.2 in March. This indicates falling expectations. The percentile standing of the future index is in its 47.8 percentile, below its historic median also on data back to April 2003. All the readings for the future index have diffusion values below 50 in April except for employment, which moved up slightly to 51.3 in April from 49.4 in March. And all the components in April weakened compared to March except for that employment reading. In addition, all the components in March had weakened compared to February except for retailing. This gain is broad-based weakening clustering at values close to the diffusion level of 50 that marks the dividing line between expansion and contraction.

Like the current index, the future index is mired in a patch of weakness. Over three months all the future indexes are lower on balance with the headline falling by 4 points over three months. Over six months all of the components are lower on balance except for retailing that is up by 0.7 points. The future headline is lower by 1.3 points over six months. Over 12 months all the components are lower without exception and the headline is lower by 6.1 points.

Clearly, expectations have been scaled back for Japan’s economic performance. The headline’s 47.8 percentile standing leaves it below its historic median. This result is, in part, generated by a housing reading below its median at the 39.1 percentile and by manufacturers with a 39.5 percentile standing. Employment has a 43.5 percentile standing which is below its median but not as weak relative to other past future readings as the current index for employment is weak compared to its past index values. So as weak as the current economy is on the employment side, the future economy doesn't have the same degree of pessimism associated with it as the current index.

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Taken together, the current and future readings do not give us the economic picture the Bank of Japan is hoping for. With the yen weakness becoming more of an issue, the BOJ would far prefer a strengthening economy that would allow it to raise interest rates that would help to support the yen. However, raising interest rates to support the yen is not going to be possible if the domestic economy is weakening. Japan once again finds itself in a difficult spot. If this weakening trend continues, it's going to be a demanding situation for policymakers. For now, past trends in consumer spending as well as the current future profiles for the economy watchers index leave the economy in a difficult spot for policy decisions.

Japan

  Japan’s Economy Watchers Index Sinks in April

Andrew Cates

**The US economy**
Last week’s US economic data releases almost universally disappointed forecasters’ expectations and have more generally flagged a slightly higher probability of a recession outcome in the coming months. For example, both the manufacturing and services ISMs declined into contraction territory in April. Weaker employment growth and a small step-up in the unemployment rate also indicate that growth momentum may be flagging. An indicator of recession risk generated by the Sahm Rule has certainly been climbing to more worrying levels (see chart 1 below). For the record, that rule asserts that a recession has begun when the three-month moving average of the national unemployment rate rises by at least 0.5 percentage points relative to its low during the previous 12 months.

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**US economic momentum versus the rest of the world**
Looking more broadly at global developments, this week’s PMI surveys (published by S&P Global) suggested that economic growth picked up in April in most major developed and developing economies. Looking at momentum over the past three months, however, also reveals a noteworthy anomaly. Specifically, and in line with the messages above, the US economy has been losing momentum according to these surveys, while other major developed and developing economies have been gaining momentum (see chart 2).

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**Global inflation surprises**
One reason for these relative shifts in growth momentum could concern the starting position of each economy. Many major economies, including the euro area and UK, were either in, or close to, a recession toward the end of last year. In contrast, the US economy has experienced relatively robust growth momentum over the last few months and up until now. Another noteworthy takeaway, however, from the recent dataflow concerns the unexpected pick up in US inflation compared with elsewhere (see chart 3). This pick-up may have eroded purchasing power and tightened financial conditions (through its impact on interest rate expectations), thereby acting as a brake on the US economy relative to other areas.

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**Oil prices and US Treasury yields**
Another critical element in this discussion about growth and inflation is the oil price. That’s because oil price gyrations have played a big role in driving global inflationary pressures in recent years. And financial market participants appear to have noticed judging by the very tight correlation between the oil price and US Treasury yields over the last year or so (see chart 4). That oil prices have dropped back of late has accordingly been another factor driving the improvement in financial market sentiment in recent days.

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**Global supply chain pressures and inflation surprises**
An additional factor that’s worthy of mention in this discussion is global supply chain pressure. As measured by an index that’s calculated by the New York Fed, those pressures have also been a big driver of global inflation in the post-pandemic era. And even now, small shifts in the degree of easing or tightening of those pressures appear to chime quite closely with inflation outcomes (see chart 5).

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**Asian currencies**
Finally—and largely due to shifts in relative interest rate expectations—the US dollar has been strong for most of the year. This strengthening has adversely affected Asian currencies, which have, on average, weakened by 4.4% against the dollar so far this year. The degree of depreciation among Asian currencies against the dollar has varied, however, with the Japanese yen experiencing the most significant weakening, while the Indian rupee has shown relative resilience. Recently, there have been notable strengthening moves in the yen, spurring speculation that these were driven by intervention from authorities. Regarding the rupee, potential reasons for its continued resilience include India’s positive yield differentials with the US and sustained investor optimism about India's economic prospects, among other factors.

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Last week's softer-than-expected US data releases have sparked renewed hopes that the Federal Reserve may initiate an easing cycle in the coming months, and, in doing so, have reignited investors' appetite for risk. This week, our charts explore the messaging from some of those US data releases (see chart 1). We also examine the signals from this week’s final composite PMI data, and particularly how weaker US growth momentum currently contrasts with stronger growth momentum in many other major economies (chart 2). With inflation dynamics likely one of the drivers of this relative growth divergence, we next explore how a series of positive inflation surprises in the US recently contrasts with negative inflation surprises elsewhere (chart 3). Weaker oil prices in recent days may provide some relief to the US inflation outlook in the period ahead (chart 4), as could the further easing of global supply chain pressures that’s been signaled by latest data from the New York Fed (chart 5). Finally this week, and pivoting to Asia, we examine recent currency trends in some of the region's major economies (chart 6).

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Charts of the Week: Inflation Still Holds the Key

**Consensus GDP growth forecasts**
There has been a reversal of fortune in the world economy in recent weeks according to the latest Blue Chip survey of economic forecasters. The consensus forecasts for US GDP growth in 2024 was unchanged in May’s survey compared with April, at 2.4%. That’s the first time since July 2023 that US forecasters did not raise their growth expectations for this year. This stands in contrast moreover to the growth forecasts for the euro area and UK, which were lifted in May compared with April. The growth outlook for Japan in the meantime was left unchanged (see chart 1 below). 

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**Outcomes for GDP growth in Q1**
Those observations for Europe, unsurprisingly, chime with the early estimates for GDP growth in Q1. While the US economy still eked out a respectable growth rate of 0.4% q/q, that still marked its weakest pace of quarterly growth since 2022 Q2. The UK and euro area in the meantime chalked up respective growth rates of 0.6% and 0.3%, their fastest pace of growth since 2021 Q4 and 2022 Q3. That said, a bigger-than-expected contraction in Japan’s GDP of 0.5% in Q1, stands in contrast to the stabilization in growth expectations seen above. Weaker momentum in the US and stronger momentum in Europe, to be fair, partly reflect the underlying base from which the economy has shifted – i.e.  a relatively strong base in the US and a weak base in Europe. Even so, these reversals of fortune are clearly worth monitoring in the coming weeks.  

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**Germany’s under-performance**
Within Europe, nonetheless, the lingering under-performance of the German economy is another standout. One reason for this is the under-performance of activity in its industrial sector. In March 2024, for example, Germany’s industrial production was still around 9.5% lower than its pre-COVID level in January 2020. That compares with France, where production in March was some 4.2% lower than Pre-COVID levels, and Italy, where production was some 5.2% lower. Reasons for this under-performance are varied but they focus on the heavy reliance of Germany’s economy on manufacturing, amidst simmering global trade tensions and supply chain disruptions. Germany is also undergoing a major transition in its energy policy, which has led to increased dependence on imported energy, particularly natural gas from Russia. And that became extremely problematic especially after geopolitical tensions escalated.

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**The UK labour market**
Tuning back to the UK where this week’s labour market data have taken some of the shine away from its latest Q1 GDP report. These data showed another big fall in employment, albeit concentrated in the part-time sector, a further decline in job vacancies and another rise in the unemployment rate and accordingly speak to growing slack in the labour market. However, the data on wage growth were the proverbial fly in the ointment for the Bank of England. For instance, private sector regular pay rose by 0.6% month-over-month in March, following a 0.9% increase the previous month. These rates are arguably too strong for those on the BoE’s monetary policy committee who lean towards a more hawkish stance.

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**US immigration**
As for the US, while it might now be underperforming, this follows a period during which, as Chart 1 above suggests, its economy had been significantly outperforming expectations. Various factors have contributed to this, including fiscal activism, technological innovation, and robust corporate balance sheets. However, another factor gaining recognition is immigration. For instance, new data from the CBO suggest that 3.3 million net immigrants arrived in the US in 2023. Through its impact on labour force growth, consumer spending, and housing activity, immigration could have provided far more support to overall economic growth in the US last year than many observers had initially realized.

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**Global inflation**
Finally and taking a step back from the ebb and flow of the monthly inflation cycle, our last chart this week looks at the latest annual inflation data for 2023 from the World Bank. More specifically, we home in on the relatively rapid pace of global food price inflation last year when compared with levels of energy price inflation or broader levels of core (ex food and energy) CPI inflation (see chart 6). Some of the key reasons for these high inflation rates in food prices include supply chain disruption amidst intensifying geopolitical tensions, together with a likely lagged impact from high energy prices in the previous year. But another key source of food price inflation is likely to have been climate change and more extreme weather conditions: Indeed, extreme weather events, including droughts, floods, and heatwaves, affected key agricultural regions around the world last year which, in turn, reduced crop yields and tightened global supplies of food commodities.

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A Fed easing narrative has been re-energized over the past few days largely thanks to a slightly weaker than expected US CPI report this week but, more generally, because of a battery of weaker-than-expected US data over the past couple of weeks. In our charts this week we examine the latest Blue Chip survey of economic forecasters and the corresponding signals suggesting that the light is now shining a little less brightly on the US economy (see chart 1). The same survey suggests the outlook is shining a bit more brightly on Europe’s economies, albeit from a position of relative darkness, and as equally indicated by the GDP growth outcomes for Q1 2024 (Chart 2). Germany, however, continues to be a notable underperformer, which prompts us to examine the latest data on industrial production across several major euro area economies and the persistent evidence of underperformance (Chart 3). Next, we turn our attention to this week's UK labour market data, which increasingly suggest that this market is loosening (Chart 4). We then shift focus back to the US economy, highlighting one of the reasons for its relative strength in recent months —namely, higher levels of immigration (Chart 5). Finally, we address inflation issues, and specifically the relatively rapid pace of global food price inflation in recent years (Chart 6).

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Charts of the Week: Reversal of fortune

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Charts of the Week: Reversal of fortune

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