Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071211g.jpg" width="353">
Third Quarter data on the composition of Gross Domestic Product, in real and nominal terms were released today for Turkey, Estonia and Russia.
The year to year rise in the real seasonally unadjusted data for all three countries has been slowing, as can be seen in the first chart. In Turkey, for example, the real increase in the third quarter was 1.5%, down from 4.0% in the second quarter and 6.8% in the first quarter. In Estonia the deceleration was more modest. The year to year rise in real GDP in the third quarter was 6.4%, down from 7.6% in the second quarter and 10.1% in the first quarter. In Russia, the deceleration has been minimal. In of this year, the increase in real GDP was 7.9%, in the second quarter 7.8% and in the third quarter, 7.7%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071211h.jpg" width="353">
Inflation trends, as measured by the year to year increase in the deflator, have been mixed as can be seen in the second chart. Inflation has been declining in Turkey but rising in Estonia and Russia. Inflation in Turkey, which recently peaked at 9.4% in the second quarter of 2006, is now down to 7.7%. Inflation in Estonia in the third quarter was 9.6%, compared with 9.5% in the second quarter and 8.6%in the first quarter. And in Russia, inflation almost doubled from 7.5% in the first quarter of this year to 13.4% in the third quarter.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GROSS DOMESTIC PRODUCT &nbsp;(Y/Y % Chg)&nbsp;</th>
<th scope="col">Q3 07</th>
<th scope="col">Q2 07</th>
<th scope="col">Q1 07</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">TURKEY</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Real&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>1.51</td>
<td>4.05</td>
<td>6.79</td>
<td>6.15</td>
<td>7.36</td>
<td>9.01</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Nominal</td>
<td>9.34</td>
<td>12.84</td>
<td>16.06</td>
<td>14.75</td>
<td>12.59</td>
<td>19.09</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Deflator&nbsp;&nbsp;</td>
<td>7.71</td>
<td>8.45</td>
<td>8.66</td>
<td>7.93</td>
<td>4.99</td>
<td>9.36</td>
</tr>
<tr class="odd">
<td class="firstcol">ESTONIA</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Real&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>6.38</td>
<td>7.56</td>
<td>10.10</td>
<td>11.19</td>
<td>10.15</td>
<td>8.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Nominal</td>
<td>16.57</td>
<td>17.77</td>
<td>19.68</td>
<td>18.06</td>
<td>16.99</td>
<td>10.23</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Deflator&nbsp;&nbsp;</td>
<td>9.62</td>
<td>9.49</td>
<td>8.65</td>
<td>6.18</td>
<td>6.20</td>
<td>1.82</td>
</tr>
<tr class="odd">
<td class="firstcol"> RUSSIA&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Real&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>7.65.</td>
<td>7.77</td>
<td>7.90</td>
<td>6.71</td>
<td>6.37</td>
<td>7.15</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Nominal</td>
<td>22.13</td>
<td>20.89</td>
<td>19.97</td>
<td>23.87</td>
<td>26.82</td>
<td>28.23</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;Deflator&nbsp;&nbsp;</td>
<td>13.45</td>
<td>12.19</td>
<td>7.49</td>
<td>16.09</td>
<td>19.20</td>
<td>19.97</td>
</tr>
</tbody>
</table>


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Real GDP Slowing in Turkey, Estonia and Russia Inflation Moderating in Turkey, but Rising in Estonia and Russia

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Tom Moeller

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Retail gasoline prices for all grades declined to an average $3.21 per gallon (-7.5% y/y) last week after falling to $3.26 in the week ending February 24. Prices remained up from a low of $3.13 in the week of December 30. The recent high was $3.79 in the week ending April 22, 2024. Its all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel fell to $3.64 per gallon (-9.6% y/y) in the February 24 week from $3.70 in the prior week. The latest diesel price stood well below 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 weakened to $69.67 per barrel (-12.0% y/y) in the week ended February 28, after falling to $71.77 per barrel in the prior week. These prices remained above a low of $69.37 in the week of June 30, 2023 but below a high of $91.45 in the week of September 29, 2023. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $68.37 per barrel. The price of European Brent crude oil of $74.25 per barrel (-113.9% y/y) slumped in the week of February 28 from $76.09 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in the week of June 10, 2022. Yesterday, the price was $72.85 per barrel.

Natural gas prices plunged to an average $3.89 per mmbtu (+146.2% y/y) in the week ended February 28 from $5.90/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $3.80 per mmbtu.

Gasoline demand eased 0.1% y/y in the four weeks ending February 21 following a 0.4% y/y rise in the prior four weeks. Demand for all petroleum products rose 4.2% y/y in the four weeks ending February 21 after a 3.7% y/y rise in the previous four-week period. Crude oil input to refineries rose 5.6% y/y in the four weeks ending February 21 after a 4.4% y/y increase in the prior four weeks.

Gasoline inventories rose 1.7% y/y in the week ending February 21 after a 0.4% y/y rise in the week ending February 14. Residual fuel oil inventories fell 18.0% y/y in the week of February 21, after a 19.9% y/y fall in the prior week. Crude oil inventories rose 2.2% y/y in the week of February 21 after a 3.2% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories held steady at 29.6 days in the week of February 21. The recent low was 22.9 days in the week of November 8. The supply of crude oil fell to 27.8 days in the week of February 21 from 28.2 days in the prior week, up from 24.6 days in the week of January 10 but remained 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 fall sharply.
- Crude oil prices weaken.
- Natural gas costs decline significantly.

U.S. Energy Prices Decline in Latest Week

Robert Brusca

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Unemployment in the European Monetary Union (EMU) continues to hug all-time lows at 6.2%. In the EU, the unemployment rate is at 5.8% in January, also an all-time low for that reading.

On a year-over-year basis, trends for unemployment are mixed, falling in six of the 12 monetary union countries in the table and rising for six others. However, because of country size differences, the EMU shows that the unemployment rate falls by three-tenths of a percentage point over 12 months as does the rate for the EU.

What is remarkable about these statistics is that we are looking at very tight and well performing labor markets, even though the European economy has not been doing particularly well- even with war on its doorstep and with the manufacturing sector performing particularly poorly for a long stretch of time. The local service sectors have carried the monetary union and for the most part its member countries to sustained strong economic conditions as far as the labor market is concerned.

However, as we can tell from recent elections in Europe and in the United States, there's been a great deal of disappointment and disillusionment about economic performance. Unemployment rates may be low, and may have remained low; however, economic conditions generally are not that favorable. People are not that happy and, despite the low rates of unemployment, both Europe and the United States have been battling sustained above-target rates of inflation.

**Are we learning that consumers hate inflation more than we thought?**
The other thing that is strange about this period is that inflation has been overshooting for a long time. It's closer to being in its range in Europe than it is in the U.S. (45-continuous months of missing its target). However, both the U.S. and Europe have had a very long period of time when their target either has not been met (as in the U.S.) or has been only sporadically met (EMU) and still has inflation regarded as being excessive. Central banks have not taken the steps to control inflation even though labor market performance is excellent by historic standards. And while central banks have bent over backwards in this respect, generally consumers are not particularly swayed by the excellence of the conditions created by these policies.

**Central banks chose to let inflation run hot**
Central banks’ choice to pursue some sort of soft-landing and avoid recession has not been particularly popular with people although they have remained for the most part fully employed. In fact, the overshooting of inflation seems to have created a great deal of unrest despite conditions of ongoing full employment both in the United States and across Europe. This will be something that economists are going to have to look at because there's nothing about this reaction that is obvious that people should naturally react this way to this kind of economic performance. One might expect that people would be happy to have full employment and although the inflation overshoot was horrific for a period of time it has since come under ‘better’ control and isn't as particularly as high as it once was; although it's also true that because of inflation being what it was, we have a situation in which prices are still quite high. High inflation can be cooled but it generally leaves higher prices in its wake, even once it is stamped out for good. And inflation is not yet stamped out for good. Economist stress that inflation has been largely tamed but… are they forgetting that consumers pay those still high prices, not just the inflation rate?

**Sequential and monthly inflation changes point lower**
Sequentially among the 12 EMU countries in the table, six of them show unemployment declines over 12 months and six others show increases. Six of them show unemployment declines over six months while five show increases. Over three months, five of them show unemployment declines while three of them show increases. In terms of the monthly data, in November there are four countries reporting month-to-month declines compared to two reporting increases; in December five countries report month-to-month declines with five others reporting month-to-month increases. In January, the split is six reported inflation declines to four reported month-to-month increases.

**Trend to lower unemployment rates cut across country size**
Generally, there are more unemployment rate declines being reported than increases being reported across countries; that is supported by and consistent with the aggregate data for the monetary union that shows the unemployment rate has fallen over the last year. However, the further meaning of the country level data is that the trend for the monetary union is broad, and it's not being dominated by the large countries; the small countries are not being left out of the improving process. Over the last three months, Greece and Spain are the only countries showing declines in the unemployment rate in each month. Over the broader period, looking at changes over 12 months, six months and three months, there are consistent declines in unemployment being reported in Portugal, Greece, Ireland, and Spain. There are consistent increases the unemployment rate being reported in the Netherlands. However, there also are countries with strings of increases mixed with unchanged unemployment rates reported over these three periods: Belgium, Germany, Finland, and Luxembourg.

**Very little evidence of unemployment stress**
Among monetary union members, only three countries Luxembourg, Finland, and Austria have unemployment rates above their respective median rates that they have recorded on data since 1994. For those three countries Finland and Austria report unemployment rates above their median by a small amount by 0.4 percentage points for Austria and 0.4 percentage points for Finland. Only Luxembourg has a ‘substantial’ unemployment rate overshoot with the current unemployment rate at 6.4% compared to a median of 4.8%.

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**Events are changing**
Attention in Europe is beginning to shift away from the economic data with events in Ukraine and with a resetting of the relationship between the United States and Europe and with shifting and as yet unresolved U.S.-Ukraine relations. Geopolitical developments could come to dominate perceptions of consumer confidence in the coming months in Europe. This will be something to watch. For the time being, economic performance in the Monetary Union is hard to characterize because based upon GDP growth and traditional growth metrics the rankings of current performance are poor. However, labor markets and employment metrics are, conversely, very solid to strong. Historic comparisons are hard to find. The ongoing economic divergence keeps us off balance in terms of understanding what policymakers will do next. We do not know if they are going to come back to placing a greater priority on hitting their inflation objectives in the months ahead or if inflation ‘targets’ will continue to be viewed as loosely as they have been.

Europe

Select EMU Unemployment Rates Remain Low

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The vehicle market improved last month following a sharp sales decline in January. U.S. light vehicle sales rose 3.3% (2.8% y/y) to 16.30 million units (SAAR) in February after falling 7.7% to 15.78 million in January. The rise in February vehicle sales accompanied a reduced 1.8% y/y rise in real disposable income through January, which compared to 2.2% growth last year.

Sales improvement was broad-based last month. Light truck sales rose 3.1% (2.8% y/y) during February to 13.15 million units (SAAR), after falling 7.4% in January. Purchases of domestically-made light trucks improved 2.8% (1.5% y/y) to 10.02 million units, after falling 6.3% in January. Sales of imported light trucks rose 4.0% (7.2% y/y) to 3.13 million units, following January’s 10.7% decline.

Trucks’ 80.7% share of the light vehicle market last month compared to 80.9% in January and 80.6% in February of last year. The share was 80.3% during all of 2024 and 53.3% ten years earlier.

Auto sales also improved last month and rose 4.0% (-1.9%) to 3.15 million units (SAAR) following an 8.5% January decline. Auto sales have been moving sideways since early-2023. Purchases of domestically-produced cars rose 6.8% (4.0% y/y) last month to 2.34 million units, after falling 9.1% in January. Sales of imported autos declined 2.4% (-14.6% y/y) to 0.82 million units, following a 7.7% January decrease.

Imports' share of the U.S. light vehicle market eased to 24.2% in February from 24.4% in January. It compared to a May 2023 low of 22.9% before it reached a high of 26.3% in November of 2023. Imports' share of the passenger car market fell to 26.0% last month from 27.7% in January. It reached a high of 38.7% in September 2021. Imports' share of the light truck market rose to 23.8% last month after falling to from 23.6% in January.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the **INDUSTRY** database.

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- Both light trucks & autos recover part of January decline.
- Domestic sales rise, but import sales are mixed.
- Imports' market share slips further.

U.S. Light Vehicle Sales Rebound Modestly in February

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The ISM Purchasing Managers Index of activity in the manufacturing sector declined to 50.3 during February after rising to 50.9 in January. It remained up from a low of 46.9 in October of last year. A level of 50.4 had been expected by the Action Economics Forecast Survey. The series reached a monthly high of 63.8 in March 2021.

Performance amongst the component indexes remained mixed last month. The new orders index slumped to 48.6 from 55.1 in January. It was the lowest level in four months. A greatly lessened 20.3% (NSA) of respondents reported higher orders while a fewer 17.3% indicated declines. The February production index fell to 50.7 after surging to 52.5 in January. A lessened 16.5% (NSA) of respondents reported higher production while a reduced 14.6% reported lower. The employment index fell to 47.6 from 50.3, which was the first reading above break-even since May. A roughly steady 12.0% (NSA) of respondents reported more hiring while a higher 17.1% indicated less. Working higher, the inventories reading strengthened to 49.9 last month from 45.9 in January. A higher 14.6% (NSA) of respondents reported higher inventories while a greatly lessened 13.0% reported lower. The supplier delivery index surged to 54.5, its highest level since August 2022. A higher 14.9% (NSA) of respondents reported slower delivery speeds while a steady 6.0% reported a quickening.

The prices index, which is not part of the composite series, surged to 62.4 (NSA) in February after increasing to 54.9 in January. It was the highest level since June 2022, up from a September low of 48.3. A greatly increased 31.4% of respondents reported higher prices last month while a lessened 6.7% reported lower prices.

In other series, the export orders index fell to 51.4 in February from 52.4 in January. These readings remained above a low 45.2 in January of last year. The imports index rose 52.6, an eleven-month high, from 51.1 in January, while the order backlog index rose to 46.8 (NSA) last month from 44.9 in January.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- Index suggests modest slowdown.
- New orders, production & employment readings weaken.
- Prices index jumps to highest level in three years.

U.S. ISM Manufacturing Index Eases as Prices Surge