Following the 3 pt drop in the weekly ABC poll on Wednesday, the preliminary Oct UoM confidence figure also fell and was below expectations. At 69.4, it’s down 4.1 pts from Sept (which was the highest since Jan) and was 3.9 pts below forecasts. Most of the drop was in the Outlook as it fell to 67.6 from 73.5 while the Current Conditions fell by just 1.3 pts. There was a large .6% gain in one year inflation expectations to 2.8% BUT that just puts it back in line with the April thru Aug trend. Inflation expectations looking 5 years out rose .1% to 2.9%, in line with the recent trend. This data point is now our 3rd Oct figure of the week and bumpy continues to be the economic trend as the NY survey was great, the Philly Fed was light and today’s number partially reversed the Sept confidence improvement.
Sept Industrial Production rose a much better than expected .7% vs forecasts of a gain of .2% and Aug was revised up to show a gain of 1.2%, .4% more than expected. As a result, capacity utilization rose to 70.5% from 69.9%, the highest since Feb. The strength was led by an 8.1% gain in motor vehicle/parts as auto plants ramped again to fill the depleted inventories from the summer that were further exaggerated by the CARS program. Capacity utilization in the auto sector rose to 51.2% from 47.2% in Aug and 44.3% in July. Ex the auto sector, IP rose .4% helped out by a .5% gain in computer/electronics and a .7% rise in mining. Utility output and machinery production both fell. Manufacturing will be a key factor contributing to the 2nd half recovery and the inventory rebuilding is happening mostly in vehicles, mining (helped by rising commodity prices) and computer/electronics. The sustainability will of course be determined by the pace of final demand.
Net foreign purchases of long term US assets totaled $28.6b in August, a touch less than expected. Buying of US Treasuries slowed for a 2nd month and totaled $23.9b led by buying from the French surprisingly. Japan, the 2nd biggest holder, bought $6.5b but mainland China, the largest foreign owner of US debt sold $3.4b worth. Hong Kong was the 2nd biggest buyer of a net $9.4b. Foreigners bought a net $5.2b of government agency paper but sold $6.6b worth of corporate bonds, the 3rd month in a row of net sales. Purchases of US stocks totaled $10.5b, the lowest since April. US investors sold foreign bonds but bought foreign stocks. Bottom line, while this data is somewhat dated, the trends are vital to watch considering the state of the US$. August saw the $ index actually rise and maybe helped the inflows, thus making the Sept data next month important as the $ resumed its downward move.