Thursday, September 15, 2011

Morning Update/ Market Thread 9/15

Good Morning,

Quick update today, just the facts as I have limited time prior to the boat show.

CPI came in hotter than expected. Remember yesterday I said that PPI leads… Econoguess said CPI may also reflect the turn down, but I say that will come later, CPI follows:
Inflation at the consumer level remained surprisingly warm in August. The consumer price index in August barely slowed to a 0.4 percent increase, following a strong 0.5 percent jump in July. The August figure exceeded the median projection for a 0.2 percent increase. Excluding food and energy, the CPI rose 0.2 percent, matching the pace the month before.

For major components, energy continued to rise with a 1.2 percent increase after rebounding 2.8 percent in July. Gasoline increased 1.9 percent, following a 4.7 percent jump in July. Food price inflation accelerated, rising 0.5 percent after jumping 0.4 percent the prior month.

Within the core, shelter and apparel were the biggest contributors to the gain. Shelter rose 0.2 percent while apparel jumped 1.1 percent with the latter likely feeling pressure from higher costs for materials. Overall, most of the core's major components posted increases, additionally including used cars and trucks, medical care, household furnishings and operations, recreation, tobacco, and personal care. The new vehicles index, unchanged for the second month in a row, was an exception.

Year-on-year, overall CPI inflation worsened to 3.8 percent from 3.6 percent (seasonally adjusted) in July. The core rate accelerated to 2.0 percent from 1.8 percent on a year-ago basis. On an unadjusted year-ago basis, the headline number was up 3.8 percent in August and the core was up 2.0 percent.

With today's report, the core CPI hit the upper bound of the Fed's implicit inflation target range of 1.5 to 2.0 percent. This will make it tougher for the doves in the FOMC to argue for another round of monetary ease. Equity futures fell back at the time of the release on a rise in jobless claims and a weak Empire State.

The Empire State Report is horrid:
Business conditions in the New York manufacturing region continue to contract at a steady but mild rate based on the Empire State index which, at minus 8.82 this month, shows its fourth straight negative single-digit reading. New orders, the most important leading indicator in the report, are also in the negative column for the fourth straight month at minus 8.00. Unfilled orders, at minus 7.61, are down for the third straight month. Strength in orders earlier in the year had been keeping shipments up but not any more with this reading falling convincingly into negative column at minus 12.88. Employment, which like shipments also lags orders, also fell into the negative column, to minus 5.46 this month. This report offers the first indication on August conditions in the manufacturing sector and the news is disappointing.

Jobless Claims are still horrid:
Jobless claims jumped 11,000 in the September 10 week to an unexpectedly high 428,000. The prior week was revised 3,000 higher to 417,000. The Labor Department isn't citing any effect from Hurricane Irene though last week the department said they did see the possibility of the small upward revision to the September 3 week. Though there's no special factors for the September 10 week, the week was shortened by the Labor Day holiday which may be creating some noise. But a look at the four-week average isn't encouraging, up 4,000 to 419,500 for the fourth straight gain with the level more than 15,000 higher than the month-ago comparison.

Continuing claims for the September 3 week fell 12,000 to 3.726 million with the four-week average up 1,000 to 3.741 million. The unemployment rate for insured workers is unchanged for the fifth straight week at 3.0 percent.

This report will likely lower the initial outlook for the September employment report and, especially given the string of other unwelcome economic news this morning, is likely to weigh on the stock market.

Industrial Production is weakening, and Capacity Utilization is still in depression territory even after years of real contraction:
After a strong July, manufacturing slowed significantly in August but remained positive. However, a continuing rebound in auto assemblies kept the manufacturing gain strong. Overall industrial production in in August rose 0.2 percent, following a 0.9 percent jump the month before (no revision). The August number came in a little higher than the market median forecast for a 0.1 percent uptick.

By major industry, manufacturing remained strong with a 0.5 percent rise after a robust 0.6 percent gain in July (no revision). The auto component advanced another 1.7 percent after a rebound of 4.5 percent in July. Outside of autos, manufacturing is still healthy. Excluding motor vehicles, manufacturing rose 0.4 percent, following a 0.3 percent increase the prior month.

In other major sectors, utilities output fell back 3.0 percent after surging 2.8 percent in July on atypically hot weather. Mining output grew 1.2 percent after increasing 1.1 percent in July.

On a year-on-year basis, overall industrial production was up 3.4 percent in August, matching the pace in July.

Overall capacity utilization in August edged up to 77.4 percent from 77.3 percent the prior month (originally 77.5). The August rate posted slightly lower than analysts' estimate for 77.5 percent.

Despite the negativism in various manufacturing surveys, national production numbers continue to look good-especially for manufacturing. On the news, equity futures rose modestly.

The Philly Fed Survey is released at 10:00 Eastern.

Have a great day, get real, stay real!