Louise Curley

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050628c.jpg" width="353"></p>
<p>Business confidence in both France and Italy had remained unchanged or declined in the months since October, 2004 through May 2005. In June, however, business confidence in France rose, but confidence in Italy continued to weaken.The attached chart show the French and Italian measures of business confidence.</p>
<p>The composite business climate indicator for France rose 2.1% to 99 (100 being the long term average) in June. The rise has been attributed to the euro&#39;s recent decline against the dollar and to the 4.5 billion euro plan announced June 8 by Prime Minister Dominique de Villepin to increase employment.</p>
<p>The decline in the Euro failed to raise confidence in Italy but it may have been a factor in reducing the extent of the decline. The ISAE (Instituto de Studi e Analisis Economica) index of business confidence declined only 0.12% in June, in contrast to the 0.59% decline in May and 0.24% in April. The pessimism of Italian businessmen has no doubt been influenced by the fact that Italy has experienced two successive quarters of decline in real gross domestic product; -0.44% in the fourth quarter of 2004 and -0.51% in the first quarter of 2005. In France, on the other hand, GDP has increased of 0.67% and 0.21% in the corresponding periods.</p>
<p>As we have noted in previous commentaries on confidence, the recent rise in the price of oil has yet to be reflected in the confidence indicators.</p>
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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col"><b>Jun 05</b></th>
<th scope="col"><b>May 05</b></th>
<th scope="col"><b>Jun 04</b></th>
<th scope="col"><b>M/M%&nbsp;</b></th>
<th scope="col"><b>Y/Y%&nbsp;</b></th>
<th scope="col"><b>&nbsp;2004&nbsp;&nbsp;</b></th>
<th scope="col"><b>&nbsp;2003</b></th>
<th scope="col"><b>&nbsp;2002</b></th>
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<td class="firstcol"><b><a href="http://www.haverselect.com/dlx/FRANCE/FRANCE.HTM">France</a></b></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">Composite Business Climate Indicator (Long Term Average = 100)</td>
<td>99</td>
<td>97</td>
<td>105</td>
<td>2.06</td>
<td>-5.71</td>
<td>105</td>
<td>95</td>
<td>97</td>
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<td class="firstcol"><b><a href="http://www.haverselect.com/dlx/ITALY/ITALY.HTM">Italy</a></b></td>
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<td class="firstcol">ISAE Indicator of Business Confidence (2000 = 100)</td>
<td>84.2</td>
<td>84.3</td>
<td>90.4</td>
<td>-0.12</td>
<td>-6.86</td>
<td>89.5</td>
<td>88.0</td>
<td>90.1</td>
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Business confidence in both France and Italy had remained unchanged or declined in the months since October, 2004 through May 2005. In June, however, business confidence in France rose, but confidence in Italy continued to weaken.The [...]

More Indicators of European Business Confidence: French Up, Italian Down

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Tom Moeller

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The Conference Board's Leading Economic Index fell 0.1% (-3.0% y/y) during December, following a 0.4% November rise, revised from 0.3%, and a 0.3% October decline, revised from -0.4%. A 0.1% easing in the December index had been expected in the Action Economics Forecast Survey. The Leading Index is comprised of 10 components which tend to precede changes in overall economic activity. The index has been trending lower since January 2022, contrasting with positive real economic growth.

During December, component changes amongst the leaders diverged. Series which contributed positively to the index change included a longer factory sector workweek, improved factory orders for consumer goods, an increase in orders for nondefense capital goods excluding aircraft, higher stock prices in the S&P 500 index and the leading credit index. Series contributing negatively were higher initial unemployment insurance claims, a lower ISM new orders index, falling building permits, the interest rate yield curve and consumer expectations for business/economic conditions.

The Coincident Economic Index rose 0.4% last month (1.6% y/y) after rising 0.2% in November and holding steady in October. Movement amongst the four components was uniformly positive in December. Industrial production jumped by the largest amount since February, real personal income strengthened steadily, payroll employment improved on prior two months’ increases while real manufacturing & trade sales rose steadily.

The Lagging Economic Index improved 0.1% last month (0.3% y/y) after rising 0.2% in November and remaining unchanged in October. The 6-month change in the services CPI, the 6-month change in unit labor costs and the ratio of consumer installment credit-to-personal income contributed positively to the index change. The business inventory-to-sales ratio contributed nothing to the index change. The duration of unemployment, the prime interest rate charged by banks and commercial & industrial loans outstanding contributed negatively to the index change.

The ratio of coincident-to-lagging indicators, considered another leading indicator, rose 0.3% last month after holding steady for two straight months.

The Conference Board figures are available in Haver's **BCI** database; the components are available there, and most are also in **USECON**. The expectations are in the **AS1REPNA** database. Visit the Conference Board's [website](https://www.conference-board.org/us/) for coverage of leading indicator series from around the world.

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- Movement in leading indicator components remains mixed.
- Coincident indicators strengthen.
- Lagging indicators edge higher.

U.S. Leading Indicators Ease

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Retail gasoline prices for all grades rose to an average $3.23 per gallon (1.5% y/y) in the week ending January 20 from $3.16 in the prior week. The all-time high of $5.11 was in the week ending June 13, 2022. The retail price for on-highway diesel fuel jumped	to $3.72 per gallon (-3.2% y/y) in the week of January 20, the highest level since early-August, from $3.60 in the prior week. The latest price was down from a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil rose to $78.58 per barrel (7.3% y/y) in the week ending January 17 after increasing to $74.32 in the prior week. It was the highest level in five months but still below the peak of $120.46 in the week of June 10, 2022. Yesterday, the price was $75.89 per barrel. The price of European Brent crude oil rose to $82.53 per barrel (3.0% y/y) in the week of January 17 from $78.14 in the prior week. Prices remained below a peak of $127.40 in the week of June 10, 2022. Yesterday’s price was $80.57 per barrel.

Natural gas prices surged to an average $5.47/mmbtu (87.3% y/y) in the week of January 17 from $3.93 in the prior week, posting the highest level since a high of $5.11/mmbtu in the week of January 12, 2024. Prices reached a low of $1.40/mmbtu in the week of March 15, 2024 and a peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $4.40/mmbtu.

Gasoline demand rose 0.8% y/y in the four weeks ending January 10 on top of a 1.2% y/y gain in the prior four weeks. Demand for all petroleum products increased 1.1% y/y in the four weeks ending January 10. Crude oil input to refineries increased 1.2% y/y in the four weeks ending January 10 after a 1.5% y/y rise in the prior four weeks.

Gasoline inventories fell 1.8% y/y in the week ending January 10 after a 3.0% y/y decline in the prior week. In contrast, residual fuel oil inventories fell 12.1% y/y in the week of January 10 following a 5.7% y/y decrease in the prior week. Crude oil inventories rose 2.7% y/y in the week of January 10, the same as during the prior week.

Measured in days’ supply, gasoline inventories rose to 28.7 days in the week of January 10 from 27.5 days in the prior	 week, registering the highest reading since the end of February 2024. The recent low was 22.9 days in the week of November 8. The supply of crude oil was little changed at 24.6 days in the week of January 10, still near the lowest number since a low of 24.8 days in the week of September 20, 2024 and below a high of 31.9 days in the week of March 3, 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 reach three-month high.
- Crude oil costs surge.
- Natural gas prices strengthen to two-year high.

U.S. Energy Prices Increase Sharply

Winnie Tapasanun

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Mortgage applications edged up 0.1% w/w (2.9% y/y) in the week ending January 17 following a 33.3% rebound in the week ending January 10 and four straight weekly declines, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the second successive weekly gain to the index level of 224.6, a six-week high. Applications for loans to purchase a house rose 0.6% (-6.5% y/y) in the January 17 week after a 26.9% jump in the January 10 week and three consecutive w/w decreases. Applications for loan refinancing fell 2.9% (+27.5% y/y) in the January 17 week, the first w/w fall since the December 27 week, following a 43.5% surge in the previous week.

Mortgage interest rates generally remained high; thus, having restrained mortgage applications. The effective interest rate on a 30-year fixed-rate loan fell 8bps to a still-high 7.20% in the week ending January 17, the first w/w fall since the December 6 week, after rising to 7.28% in the week ending January 10; it was up from a low of 6.29% in the week of September 20, 2024 but down from a high of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages held steady at 6.61% in the January 17 week; it was down 83bps from a high of 7.44% in the week of October 27, 2023. The rate on 30-year jumbo loans declined 9bps to 7.13% in the January 17 week, the lowest since the December 13 week, from 7.22% in the prior week; it was down 86bps from a high of 7.99% in the week of October 27, 2023. By contrast, the rate on a 5-year ARM rose 24bps to 6.62% in the January 17 week from 6.38% in the previous week; it was above its recent low of 5.84% in the week of September 13, 2024 but down 69bps from a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan fell to 40.4% of total applications in the week ending January 17 from 42.7% in the week ending January 10, registering the first w/w drop and the lowest since the December 27 week. That was down from 55.7% in the week of September 20, 2024. Meanwhile, the adjustable-rate mortgage (ARM) share of activity rose to 5.5% in the January 17 week, the highest since the December 20 week, from 5.0% in the prior week; it was slightly up from a low of 5.4% in the week of January 5, 2024 but below a high of 10.7% in the week of October 27, 2023.

The average size of a mortgage loan increased 1.8% w/w (-0.9% y/y) to $373,800 in the January 17 week, the highest since the December 13 week, after a 2.1% rebound to $367,100 in the January 10 week. The average size of a purchase loan rose 2.9% (1.5% y/y) to $431,600 in the January 17 week, the highest since the November 29 week, after a 1.3% rise to $419,600 in the prior week. In contrast, the average size of a loan to refinance a mortgage fell 2.9% (+3.6% y/y) to $288,300 in the January 17 week, the fourth w/w decline in five weeks, after a 6.0% gain to $296,800 in the previous week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase applications rise 0.6% w/w while refinancing loan applications fall 2.9% w/w.
- Effective interest rate on 30-year fixed-rate loans drops to a still-high 7.20%.
- Average loan size rises to the highest since the December 13 week.

U.S. Mortgage Applications Increase a Marginal 0.1% in the January 17 Week

Robert Brusca

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New Zealand’s CPI shows an acceleration in the fourth quarter of 2024 compared to the third quarter. The year-over-year increase is at a relatively modest 2.2%; however, the New Zealand core that excludes food and household energy as well as vehicle fuels is running at 3.1% over four quarters. The inflation progression for the core takes inflation down to 2.5% over two quarters then back up to a 2.9% annual rate over one quarter. The graph shows that the decline in the year-over-year core and headline inflation rates have stopped in this most recent quarter; that raises the question about where inflation goes next.

There is nothing final about the pause that we see in the drop in inflation. It might be a pause that then continues its downward move, or it might not. However, as you can see from the chart, taking away the big inflation hump that we had during COVID and extrapolating a trend line from before COVID inflation puts inflation on an accelerating path. In fact, inflation, whether measured by the headline or the core, shows both above those previous trends even if we set aside the bulge of inflation during COVID.

However, inflation news is resplendent for its ability to give us mixed signals! The more that we look at it, the more it stares back in confusion. If we look at the CPI categories, we see inflation acceleration is not common: over four quarters it's occurring in only 8% of the categories; over two-quarters it's occurring in 25% of the categories; over one quarter it's occurring in only 42% of the categories. Comparing inflation month-to-month, the accelerations are below 50% for the fourth quarter, the third quarter, and the second quarter. Second-quarter inflation breadth was especially narrow even though the headline increase was slightly more in Q2 than it was in Q3. Such is inflation.

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What this demonstrates is that inflation is not well behaved in ways that might make sense to us. And in that it's somewhat similar to what I would refer to as football ratings! Ratings in the U.S. and probably soccer ratings as well in Europe and elsewhere frequently show that normal ordering statistics don't always hold. If A is greater than B and B is greater than C, then A ‘should be’ greater than C as well. But in sports you cannot order teams in this way because if team A beats team B and team B beats team C, team C just might turn around and beat team A. That fouls up the entire ordering system. Inflation similarly defis attempts to create separate independent evaluations of it and its progress that are on the page. Inflation is not alone in creating a complicated environment for a variable we would like to order and understand better. Economists continue to debate inflation and its causes. COVID is still hotly debated about whether it was because of supply-shocks, fiscal spending, or too much money supply growth. Depending on the ideology of the economist that you talk to, you're going to get a different answer about what was principally responsible.

In New Zealand, wages continue to run at a stronger pace than prices although their speed is slowing, and the unemployment rate continues to rise; we would expect the rising unemployment rate to reduce the growth rate of wages and to help contain inflation. But so far, that is not yet being done successfully. New Zealand’s 10-year government bond yield has fallen below its three-month treasury bill yield; the inverted yield curve is a signal of rates being relatively high and often a signal of a coming economic slowdown or possibly even a recession although in recent times the inverted yield curve has failed to be a significant forecaster of recession, at least in the U.S. and at least so far. Money supply growth has been modest in New Zealand well; gross domestic product has begun to slip below zero in the most recent two quarters.

On balance, New Zealand's inflation trends are disappointing. The failure of inflation to keep falling is most disappointing; however rising unemployment, and slowing GDP growth, provide some basis to think that the drop in inflation is likely to reassert itself, especially in an environment where money supply growth remains contained and where credit growth has been relatively flat at a modest pace. In addition, inflation has fallen sharply enough and is low enough to have created a high real interest rate when past inflation is compared with the current 10-year bond yield. That is a maturity mis-match for sure, but it is also a reasonable and venerated measure of the tightness of monetary policy if it is used correctly. Balancing all these complexities, it would seem that the Reserve Bank of New Zealand (RBNZ) is still in a pretty good place with respect to where inflation is despite the fact that inflation is over target, and it has stopped falling. However, the clash between the central bank and inflation is more properly characterized as a battle than a war. It's not a war because it's not won or lost. It’s a battle because it's constantly fought. The RBNZ I'm sure will remain vigilant even though it would appear to be in a relatively strong position to deal with the circumstances in hand. The battle continues but the RBNZ seems to occupy the high ground for now.

New Zealand

New Zealand Core and Headline Inflation Stop Falling; Headline Near 2%; Core Near 3%