Friday, June 14, 2013

PPI, industrial production, and consumer sentiment all miss ...

Overall, today's economic figures were far from being impressive.  

At least based on the headline PPI number, the hope of tapering the taper talk was dimmed a bit.  May PPI increased 0.5% from April, higher than the economists' 0.2% estimate.  Excluding food and energy, the m/m increase was in-line at 0.1%.  Of course, many look at the figure that excludes food and energy due to the volatility of those two groups.  But then again, given the less elastic demand of food (or comparatively speaking, the inelasticity of demand for food), we think changes in food prices will impact everyone and should be taken into account.  Food prices alone went up 0.6%, mostly driven by increase in egg prices.  We wonder if different government organizations will now suddenly launch 'health campaigns' against egg consumption!  Crazier things have happened!

Energy prices increased 1.3%, driven mainly by gasoline prices.  This goes along with our assumption about the retail sales numbers that we mentioned earlier this week; however, those retail sales numbers did not verify the assumption.  We were probably one month too early.  We could see higher gasoline prices impact CPI in June, therefore also having an impact on June retail sales.  If next week's May CPI comes in a bit high though, then hopes of tapering the taper talk, especially within the FOMC statement, could be dimmed even further.

Industrial production remained pretty much unchanged, which is what we had anticipated.  However, that was slightly below the 0.2% consensus.  We note that the April m/m change was revised to -0.4% from -0.5%, which makes the 'adjusted' consensus for May 0.1%.  But again, the expectation was a bit high.  We also expected a miss on capacity utilization, which did take place, but the miss was around 20bps more than we had projected.  Capacity utilization came in at 77.6%, below our 77.8% and the Street's 77.9%.  The no-change in production, accompanied by nice decline in capacity utilization, is not good news when it comes to the state of employment, in our opinion.  

The University of Michigan consumer sentiment figure also missed expectations; 82.7 vs 84.5.  

With disappointing economic numbers, the market is barely down, especially given the fact that it spiked nearly 1.5% yesterday.  Again, the Hilsenrath impact cannot be ignored.  We will see if Mr. Hilsenrath has written an even more dovish version to be published just in case next week's CPI numbers come in too high.  We wouldn't be surprised, as these days (or the past 3+ years), Bernanke and Hilsenrath have done a very good job implementing behavioral and psychological strategies to 'force' most to take more risk without much fundamental or economic justification. 

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