April CPI was flat but core CPI was up .3%, .2% more than expected and its the 1st .3% reading since July ’08. Y/o/Y CPI fell .7% after falling .4% in Mar and its the biggest drop since ’55 but with the recent rise in energy and food prices, that trend will reverse. The y/o/y core gain was 1.9%, the most since Nov ’08. The main factors leading to the upside surprise in the core # was a .4% gain in vehicle prices, a .4% gain in medical care and a 2.6% gain in other goods and services, made up of personal care and tobacco (prices rose 9.3% after an 11% gain in March due to higher taxes). Owners equivalent rent, 24% of the headline # and 31% of the core, rose .1%. Actual rent rose .2%. May NY Fed survey was -4.6, better than forecasts of -12 and an improvement from the April # of -14.7. New Orders though fell but after a sharp gain in Apr. Employment rose more to the best level since Dec. Prices Paid rose but those Received fell to a new low.
April Industrial Production fell .5%, .1% better than expected but March was revised down by .2%. A 1.4% gain in the output of auto’s and parts was more than offset by a drop in machinery, computer/electronics, and mining. Due to the complete shutdown of Chrysler over the past 4 weeks and some GM plants, the gain in auto production will reverse. Utility output rose .4%. Looking forward with IP is whether the huge inventory destocking that’s been seen over the past 2 quarters will be followed by an increase in production to replenish those inventories. Capacity Utilization fell to 69.1% from 69.4%, the lowest since at least 1967 but was .3% higher than expected. Some argue that this output gap will keep a lid on inflation for a while but the inflation we’ll see will be commodity inflation driven globally not by just how utilized US factories are.
March foreign long term purchases of US assets totaled $55.8b, about $23b more than expected and its the biggest inflow since Sept ’08. Likely due in part to the March Fed decision to start buying US Treasuries, the net purchases of Treasuries rose $55.3b up from $21.5 in Feb and its the biggest one month increase since April ’08. Foreigners sold a net $15.6b of Govt agency bonds, bought $3.5b of corporate bonds and $13.2b of US stocks. Because the data is somewhat dated and influenced by the Fed announcement, the $ is still higher but little changed in response.