Tom Moeller

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050127d.jpg" width="353"></p>
<p>The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago recovered to 0.39 last month from a downwardly revised 0.05 in November.A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.</p>
<p>The recovery raised the three-month moving average of the CFNAI to 0.33, its highest level since July.</p>
<p>The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.</p>
<p>During the last twenty years there has been a 74% correlation between the level of the CFNAI and q/q growth in real GDP.</p>
<p>The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_january2005.pdf">here</a>.</p>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM"><b>Chicago Fed</b></a></th>
<th scope="col"><u><b>Dec</b></u></th>
<th scope="col"><u><b>Nov</b></u></th>
<th scope="col"><u><b>Dec &#39;03</b></u></th>
<th scope="col"><b><u>2004</u></b></th>
<th scope="col"><u><b>2003</b></u></th>
<th scope="col"><b><u>2002</u></b></th>
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<td class="firstcol">CFNAI</td>
<td>0.39</td>
<td>0.05</td>
<td>0.20</td>
<td>0.34</td>
<td>-0.11</td>
<td>-0.40</td>
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The National Activity Index (CFNAI) compiled by the Federal Reserve Bank of Chicago recovered to 0.39 last month from a downwardly revised 0.05 in November.A zero value of the CFNAI indicates that the economy is expanding at its [...]

Chicago Fed Nat'l Activity Index Recovered

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The Producer Price Index for final demand held steady (+3.2% y/y) during February after increasing 0.6% in January, revised from 0.4% and rising an unrevised 0.5% in December according to the Bureau of Labor Statistics (BLS). The February reading compared to a 0.2% rise expected in the Action Economics Forecast Survey. Producer prices excluding food, energy & trade services rose 0.2% (3.3% y/y) last month after an unrevised 0.3% January increase, and an unrevised 0.4% gain in December. The PPI excluding food & energy eased 0.1% (+3.4% y/y) after rising 0.5% in January, revised from 0.3%. A 0.3% increase had been expected.

Energy prices declined 1.2% (-3.7% y/y) during February, after rising 1.8% in January. Gasoline costs fell 4.7% (-8.2% y/y) after rising 0.3% while home heating oil prices declined 9.8% (-12.2% y/y) after a 6.5% strengthening. Electric power prices rose 0.5% (0.9% y/y) in February following a 0.4% January decline and natural gas costs strengthened 1.3% (6.7% y/y) following a 3.8% surge. Diesel fuel prices declined 3.9% (-18.5% y/y) after a 10.5% jump.

Final demand food prices rose 1.7% (5.9% y/y) in February, following a 1.0% January gain. Egg prices jumped 28.1% (136.6% y/y) following a 44.0% increase. Prices for fresh and dry vegetables rose 6.0% (-16.3% y/y) after falling 22.3% in January. Beef & veal prices declined 1.8% (+9.5% y/y) after a 5.7% rise while dairy product prices rose 0.1% (5.7% y/y) after a 0.4% increase.

Final demand goods prices excluding food & energy rose 0.4% (2.1% y/y) in February following a 0.2% rise. Core finished consumer goods prices rose 0.4% (2.1% y/y) after a decline of 0.2% in January. Core nondurable goods prices strengthened 0.6% (2.3% y/y) last month after falling 0.4% in January. Durable consumer goods prices improved 0.2% (1.6% y/y), after edging 0.1% higher in January. Capital equipment prices rose 0.2% (2.5% y/y) last month following a 0.3% gain. Core government-purchased goods prices rose 0.2% (2.4% y/y) in January, after a 0.6% January increase.

Final demand services prices declined 0.2% (+3.9% y/y) last month after rising 0.6% in January. Trade services prices fell 1.0% (+4.0% y/y) last month following a 1.2% gain. Trade of finished goods prices declined 1.1% (3.6% y/y) and reversed the January rise. Prices for final demand transportation and warehousing services held steady (+2.6% y/y) in February, after strengthening 0.9% in January. Services prices less these costs rose 0.2% (4.0% y/y) last month, after a rise of 0.3% in January.

Construction costs eased 0.1% (+1.7% y/y) in February, after increasing 0.4% during January.

Prices for intermediate demand of processed goods rose 0.5% (0.3% y/y) following a 1.0% jump. Processed energy goods prices rose 0.5% last month after increasing 3.6% in January, while food prices rose 2.0% following a 0.7% January gain.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Energy prices weaken and food prices firm.
- Price gains in core goods pick up.
- Services prices decline.

U.S. PPI Is Unchanged in February; Rise in Core Index Moderates

Carol Stone, CBE

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Initial claims for unemployment insurance were 220,000 seasonally adjusted in the week ended March 8, just slightly less than the 222,000 the week before; that earlier amount was revised marginally from 221,000 reported before. In the latest week, the Action Economics Forecast Survey had expected 230,000. In this March 8 week, the four-week moving average was 226,000.

The total number of unemployment insurance beneficiaries was 1.87 million in the week ended March 1, down from 1.897 million in the week ended February 22. The four-week moving average was 1.872 million through the March 1st week, up from 1.866 million the week before.

The insured unemployment rate, that is, the total number of beneficiaries as a percent of covered employment, remained at 1.2%, which has held since March 2023.

Economic conditions vary widely across states and territories. In the week ended February 22, the highest rates were in Rhode Island (3.37%), New Jersey (2.90%), Massachusetts (2.58%), Minnesota (2.57%) and California (2.42%). The lowest rates were in Florida (0.36%), Alabama (0.44%), Virginia (0.46%), Tennessee and North Carolina (both 0.56%) and Mississippi (0.58%). Rates in other notable states include New York (2.08%), Pennsylvania (2.03%) and Texas (1.12%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims were less than forecast.
- Total recipients of unemployment insurance also fell.
- Insured unemployment rate still 1.2%.

Unemployment Insurance Claims Ease Slightly in March 8 Week

Robert Brusca

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Industrial output European monetary union rose 0.8% in January; this is for the headline series that excludes construction. Manufacturing output rose by 1% in January as well.

Sequential calculations show that overall manufacturing fell by 0.1% over 12 months, rose at a 0.8% annual rate over six months, and is now rising at a 2.1% annual rate over three months and accelerating pattern. Similarly, manufacturing output rises by 0.1% over 12 months, gains 0.2% at an annual rate over six months, and expands at a 2.1% annual rate over three months Like the headline series, manufacturing also shows acceleration in output is underway. The effect is present but not powerful.

**Sectors**
In January, the gain in overall output was mostly on the back of intermediate goods where output rose 1.6%, capital goods output also rose by 0.5%, consumer goods output fell by 2.8%. In the month, however, the strength of intermediate goods and capital goods was enough to carry the day to an overall output expansion. Sequentially, looking at growth rates over 12 months, six months, and three months, we see a steady acceleration for overall consumer goods output, for the output of consumer durable goods, and generally for the output of consumer nondurables (with a very small exception). Intermediate goods output also shows steady acceleration. The only real exception is for capital goods, where output falls by 2.1% over 12 months, improves to a decline of only 1% over six months but then lapses into a 4.7% annual rate decline over three months. Manufacturing, except for capital goods output, is showing acceleration that is broad-based.

**Quarter-to-date**
In the quarter to date, overall output is growing at a 3.6% annual rate. Manufacturing output is growing at a 3.3% annual rate. Output growth is positive in all the manufacturing sectors and subsectors except for capital goods where output is falling quarter-to-date at a substantial 4.1% annual rate. All of these, of course, are nascent figures because we are only one-month into the quarter. These growth rates are calculated by taking the compounded annual rate for January over the centered fourth quarter average for all of output, sector-by-sector.

More broadly, the queue percentile standings show that year-over-year output growth is below its median. The queue percentile standing data show broad-based weakness in the industrial sector. Overall output has a 32.6 percentile standing; manufacturing has a 26.6 percentile standing. Across sectors, consumer goods output is still strong with an 88.5 percentile standing- that's the result of strength in consumer nondurables that have a 90.4 percentile standing. However, consumer goods output is still held back by a consumer durable goods output standing, at a 38.1 percentile. Intermediate goods have a 32.1 percentile standing, while capital goods, which is an important sector in the European Monetary Union, have only a 15.6 percentile standing, extremely weak.

**Across countries**
Reviewing the data across countries, Among the 11 reporting EMU countries, five of them show IP growth above its historic median rate since 2006. Austria, Germany, and the Netherlands show output on an accelerating path, while France, Spain, Malta, and Ireland show decelerations in train. Viewed separately rather than as part of a sequence, output is nonetheless accelerating in 50% of the reporters over 12 months, in 41.7% over six months and among 54.5% over three months. There is progress but it is uneven and still slow. However, with the new tilt to more military spending – something that is already agreed to in Germany - we can expect output progress will step up more readily in the months ahead.

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Europe

EMU IP: A Long Dig-out Is Underway

Andrew Cates

**Falling US growth momentum**
The latest Blue Chip Economic Indicators survey reflects a shifting global economic landscape, with the US experiencing a notable loss of momentum. After climbing above 2.0% on the back of a strong economic performance in late 2024, consensus forecasts for US growth in 2025 have now been revised downward for the first time in nearly a year. This reversal reflects weaker-than-expected economic data and emerging challenges tied to the policy shifts of the new administration. The downgrade in US growth projections also coincides with a further downward revision to an already subdued outlook for the UK and the euro area, reinforcing concerns about a sluggish global growth outlook (chart 1).

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**Global inflation expectations**
In the meantime the same survey reveals growing concerns about the inflation outlook in the US and Europe this year, and possibly reflecting the impact of US tariff policies on global price pressures. Japan’s inflation forecast for 2025 has also surged, as rising import costs and shifting trade dynamics have additionally contributed to stronger price pressures. This all stands in contrast to China with inflation expectations for this year falling below 1%, reinforcing concerns about deflation and weak demand (chart 2).

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**Global bond markets**
Recent shifts in 10-year government bond yields reflect changing market expectations. While yields have risen sharply in Germany, China, and Japan, they have fallen in the US. Germany’s increase is tied to expanded defense spending and industrial subsidies, while China’s reflects a shift toward more aggressive fiscal easing, with its deficit target rising to 4% of GDP to counter deflation and weak demand. In contrast, falling US yields signal a reassessment of growth expectations under the new administration. This divergence suggests capital may be flowing toward economies with stronger fiscal stimulus, potentially weakening the dollar, increasing borrowing costs for US businesses, and complicating efforts to revive domestic manufacturing.

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**Overseas holdings of US Securities**
Latest data show that foreign-holdings of US long-term securities have risen steadily over the past decade, with a notable acceleration in the past two years. The most recent data additionally highlights a significant increase in foreign ownership of US corporate equities, reflecting, until recently, investor confidence in US companies.

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**Industrialisation versus de-industrialisation**
Recent US policy shifts—particularly higher tariffs on Chinese imports—aim to address the long-term decline in domestic manufacturing jobs. However, their effectiveness is uncertain, given the growing role of automation and AI in reshaping industrial production. While tariffs may offer short-term relief, they are unlikely to reverse decades of global manufacturing shifts. China’s rise from a low-value agrarian economy to an industrial powerhouse has reshaped trade patterns, while US industrial employment has steadily declined, mirroring trends in other advanced economies. Meanwhile, Vietnam and other emerging markets have absorbed manufacturing capacity, benefiting from shifting supply chains. The real challenge for US policymakers is not just bringing back jobs but ensuring domestic industries stay competitive amid changing cost structures and technological advancements.

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**Global competitiveness**
Historically, China's low unit labour costs provided it with a significant advantage, fuelling its manufacturing boom and accelerating the offshoring of US industrial jobs. However, as China's wages have risen due to economic development and increased productivity, and as US unit labour costs have remained relatively stable, the gap has narrowed considerably. Yet, still high labour costs in the US – coupled with rising trade barriers and rising input costs - still pose a challenge to the effectiveness of US policies, as firms may still find it difficult to maintain competitiveness without significant productivity gains. Indeed, as suggested above, there is a real risk that firms may instead accelerate their shift toward automation or relocate production to other low-cost regions (e.g. Vietnam), undermining the broader economic rationale for these interventions. The erosion of economic goodwill, combined with rising costs and financial market instability, additionally suggest that while the strategic objectives of US policy may be clear, the long-term implications remain highly uncertain.

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The recent financial market volatility, marked by sharp swings in bond yields and equity market repricing, reflects growing uncertainty about the trajectory of the US economy amid a rapidly shifting policy environment. The US administration’s latest tariff measures, and their conflicting objectives, have amplified uncertainty, stifled risk appetite and further ignited inflation concerns (charts 1 and 2). Markets are grappling with the inflationary impact of rising import costs, the potential supply chain disruptions caused by abrupt shifts in trade policy, and the broader implications of protectionism on corporate investment. Meanwhile, recent policy announcements from Germany and China, coupled with firming inflationary pressures in Japan, have pushed global (ex-US) bond yields sharply higher, potentially amplifying global financial instability (charts 3 and 4). These shifts could profoundly reshape global trade and investment, not just through economic fundamentals but also through a growing erosion of goodwill toward the United States. As policy unpredictability forces companies and governments to hedge against potential disruptions, trust in the stability of US economic leadership is weakening. At the same time, concerns are mounting over the effectiveness of US policy choices, particularly in relation to one of its core ambitions—reshoring manufacturing jobs (charts 5 and 6). The question remains whether these interventions will achieve their intended goals or simply accelerate automation and supply chain realignment elsewhere.

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Chicago Fed Nat'l Activity Index Recovered

Summary

Tom Moeller

More Economy in Brief

U.S. PPI Is Unchanged in February; Rise in Core Index Moderates

Unemployment Insurance Claims Ease Slightly in March 8 Week

EMU IP: A Long Dig-out Is Underway

Charts of the Week: From Blue to Red