Grab Bag of Data Consistent with Moderate Improvement in 2012H2
- The September Producer Price Index increased by 1.1 percent, pushed by higher energy prices.
- The Core PPI for Finished Goods was unchanged in September, checked by declining equipment prices.
- The U.S. Trade Deficit widened moderately in August, to $44.2 billion as exports eased.
- The University of Michigan’s Consumer Sentiment Index for October jumped to 83.1.
- Initial Claims for Unemployment Insurance fell by 30,000 for the week ending October 6, to hit 339,000.
Recent data do not move the dial of economic expectations, remaining consistent with the view that conditions improved in the third quarter, relative to the second, and that moderate improvement is continuing into the early fourth quarter. Producer prices for September came in hotter than expected with the finished goods PPI gaining 1.1 percent. The finished goods energy index was up 4.7 percent in September after gaining 6.4 percent in August. Lower crude oil prices in October should cool off the energy component, even with some upside pressure from California markets, due to refinery and pipeline problems. Finished goods food prices were up 0.2 percent in September, the weakest gain since May. There is still upstream price pressure for foods as the crude goods food index gained 1.6 percent in September. Excluding food and energy, core finished goods prices were unchanged for the month, held down by declining prices for communication and related equipment. Over the last year the finished goods PPI is up 2.1 percent.
The U.S. trade gap widened moderately in August to -$44.2 billion. Imports were essentially unchanged for the month but exports eased by $1.9 billion. The real (inflation adjusted) balance of trade for goods provides an indication of the impact of trade on Q3 GDP. It now looks like trade will be a small drag on Q3 GDP growth, but not enough to thwart an improvement from the weak 1.3 percent real GDP growth rate from Q2. The University of Michigan consumer sentiment index jumped to 83.1 in early October, well above the previous 78.3. Improving consumer confidence is a positive for home and auto sales, as well as for the upcoming holiday shopping season. Initial claims for unemployment insurance fell sharply by 30,000 for the week ending October 6, to hit 339,000. This is the lowest initial claims number since early 2008. The buzz behind the number is that there was a large drop concentrated in one state that may be more of a fly in the ointment rather than a downside break-out. Stay tuned.
Market Reaction: Equity markets are giving back opening gains. Treasury yields are down at the long end of the yield curve. NYMEX crude oil is up to $92.16/barrel. The dollar is down against the yen and the euro.