Production Sagged in November, But Labor Data is Looking Good
- Industrial Production for November dipped by 0.2 percent after gaining 0.7 percent in October.
- The Producer Price Index for November increased by 0.3 percent, cooked up by food prices.
- The core PPI gained just 0.1 percent for the month. Inflation has crested and will recede into 2012.
- Initial Claims for Unemployment Insurance fell by 19,000 to hit 366k for the week ending Dec. 10.
- The Empire State Manufacturing Survey for December increased to 9.5, its best reading since May.
U.S. industrial production fell by 0.2 percent in November, as auto production dipped by 5.4 percent from a 9.15 million unit pace in October to 8.66 million units in November. Strengthening auto sales in November, up to a 13.6 million unit pace, will be positive for the industry if the stronger sales hold up through the holidays. In 2009 and 2010 December auto sales were surprisingly strong. However, with a surge in auto sales already in November, and reports of lukewarm holiday shopping, December auto sales may disappoint. Stronger labor market and consumer confidence data are positives for auto sales, and if we see support for the 13.6 million unit sales rate of November, then auto production will accelerate into 2012 and bring headline industrial production up with it. Total manufacturing output fell by 0.4 percent in December and utility output increased by 0.2 percent. Overall capacity utilization ticked down to 77.8 percent.
The producer price index for finished goods gained 0.3 percent in November, pushed up by higher wholesale food, pharmaceutical and passenger car prices. The energy price index gained just 0.1 percent as did overall core producer prices. Over the past 12 months the finished goods price index is up 5.7 percent, still strong, but down significantly from the 7.1 percent year-over-year gains posted last July. The wave of wholesale price inflation has crested and will continue to wane through early 2012. Barring any calamities in oil deliveries, easing global demand pressures, stemming from softer macroeconomic conditions, amid ample supplies point to flat energy prices in the months ahead. The best economic news of the morning came from the weekly initial claims data. Initial claims for unemployment insurance fell significantly for the second straight week, down 19,000 for the week ending December 10. Initial claims are now comfortably below 400,000 at 366,000. With claims data improving and the household survey of employment showing strong recent gains, more weight is behind the expectation that payroll employment data will soon show improvement. The New York Fed’s Empire State Manufacturing Survey showed strengthening regional manufacturing conditions in December. The NY Fed’s general business conditions index rose to its highest level since last May.
Market Reaction: Equity markets opened with gains. Treasury yields are up at the long end. Oil is down to $94.98/barrel. The dollar is down against the yen and the euro.