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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.
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 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.
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.
In a shortened September 9 week that included Labor Day, the purchase index shot 7.0 percent higher with the refinance index up 6.0 percent. Mortgage bankers were busy in the week as interest rates came down with the average 30-year mortgage falling six basis points to an extremely low 4.17 percent. But the purchase index, which before this week had been long lifeless, will have to extend its gains in the upcoming weeks before it signals strength in the underlying housing market. Next data on the housing sector will be the home builders' housing market index on Monday.
Inflation eased in August at the producer level despite a surge in food prices. Producer prices in August were unchanged percent after rebounding 0.2 percent in July. The August figure was marginally higher than the consensus forecast for a 0.1 percent decline. By major components, energy fell 1.0 percent after dipping 0.6 percent the month before. Gasoline dropped 1.0 percent, following a 2.8 percent decrease in July. Food costs, in contrast, surged 1.1 percent after jumping 0.6 percent the month before.
At the core level, PPI inflation slowed to a 0.1 percent pace after accelerating to 0.4 percent in July. Analysts had projected an increase of 0.2 percent. Weakness in the core included declines in prices for passenger cars (down 0.4 percent) and computers (down 2.6 percent). On the upside, the leader was tires (up 1.4 percent) which contributed over twenty percent of the August increase in the core. Higher prices for radio and television communication equipment also contributed to the rise in the finished core index.
For the overall PPI, the year-ago pace in August came in at 6.5 percent, compared to 7.2 percent in July (seasonally adjusted). The core rate in July held steady at 2.5 percent on a year-ago basis (seasonally adjusted). On a not seasonally adjusted basis for August, the year-ago headline PPI was up 6.5 percent while the core was up 2.5 percent.
Inflation is slowing at the producer level and this portends well for tomorrow's CPI. The Fed will need good inflation numbers before enacting another round of monetary easing.
Retail sales in August came in softer than expected. By type of sales, numbers were about evenly mixed. Overall retail sales in August slowed to flat (no change) after rising 0.3 percent in July (originally up 0.5 percent). The August figure was below the market median estimate for a 0.2 percent boost.
Excluding autos, edged up 0.1 percent, following a 0.3 percent rise in July (originally 0.5 percent). The consensus had called for a 0.3 percent increase. Gasoline sales rose 0.3 percent after jumping 0.9 percent in July. Sales excluding autos and gasoline in August increased 0.1 percent, following a 0.2 percent rise in July.
Leading the increase were electronics & appliance stores and sporting goods, hobby & book stores. Tugging down, the notables were miscellaneous store retailers and also clothing stores.
Outside of autos and gasoline, sales were mixed. Leading the increase were electronics & appliance stores (up 0.5 percent) and sporting goods, hobby & book stores (up 2.4 percent). Tugging down, the notables were miscellaneous store retailers (down 2.2 percent) and also clothing stores (down 0.7 percent).
Retail sales on a year-ago basis in August came in at 7.2 percent, compared to 8.3 percent in July. Excluding motor vehicles, sales were up 7.3 percent on a year-on-year basis, compared to 8.4 percent the month before.
Clearly, the August retail sales numbers are somewhat disappointing. Hurricane Irene likely dampened sales a bit on the East Coast and we will need to see September numbers for further evaluation. Still, it looks like the consumer is being more cautious after the political circus over the debt ceiling legislation and retrenchment in equities.
On the initial release, equity futures eased.
Confidence among small businesses fell for the sixth straight month, down 1.8 points in August to 88.1. The top problem is sales where more firms are currently in a downtrend than an uptrend which in turn is hurting earnings. Expectations for future sales are also in decline. Only five percent of the sample say it's a good time to expand. On the positive side, more firms plan to create new jobs over the next three months and more are reporting unfilled job openings.
A monthly decline in prices of imported petroleum products pulled total import prices 0.4 percent lower in August, results that should firm consensus expectations for mild readings in tomorrow's producer price report and Thursday's report on consumer prices. Prices for petroleum imports fell 2.1 percent in August which fed through to a 0.9 percent decline for industrial supplies. Year-on-year rates eased slightly in the month, to plus 13.0 percent for total import prices and to plus 43.5 percent for petroleum products. Importantly, price pressures for finished products remain mute, up 0.1 percent for capital goods to a year-on-year rate of plus 1.4 percent and up 0.3 percent for ex-auto consumer goods to a plus 2.0 percent year-on-year rate.
On the export side, a rise in agricultural prices pushed total export prices up 0.5 percent. Agricultural prices rose 2.2 percent in the month. Year-on-year rates are little changed at plus 9.6 percent for total export prices and at plus 23.9 percent for agricultural prices. Export prices for capital goods were unchanged for a year-on-year rate of plus 1.3 percent while consumer goods ex-autos rose 0.2 percent for a year-on-year rate of plus 5.9 percent which, in an isolated sign of price pressure at the finished goods level, is up from 5.7 percent in July for a new record.