Economic data

Foreigners bought a net $20.7b of longer term US assets in Oct, below forecasts of $37.1b, and about half the level seen in Sept. Treasury purchases totaled $38.9b down from $44.7b in Sept. Net selling in government agency paper totaled $5.6b, up from $1.8b in Sept. Foreigners sold corporate debt for a 5th month by $470mm but continued to buy US stocks for an 8th straight month. Domestic US investors bought $18.1b of foreign bonds and $4.5b of foreign stocks. With the data somewhat dated, the US$ was little changed in response but there has been a clear trend this year due to the weak US$. For the first 10 months of ’09, foreigners have bought a net $237b of US assets vs $496b in the first 10 months of ’08.

The Dec NY manufacturing survey was well below forecasts at 2.6 vs expectations of 24 and is down from 23.5 in Nov. The components were weak across the board. New Orders fell to 2.2 from 16.7, Backlogs dropped to -21.1 from -2.6 to the weakest since March, Shipments (follows orders) fell to 6.3 from 13, Employment fell to -5.3 from 1.3, and Inventories fell to -18.4 from -17.1. Also, the Average Workweek fell to -5.3 from +5.3, the weakest since Aug and the 6 month outlook fell to 43 from 57, the lowest since July. Confirming the PPI, Prices Paid rose to 19.7 from 10.5 but Prices Received fell to -9.2 from -2.6 which may be an influence on tomorrow’s CPI. Either way, today’s economic data has a whiff of stagflation. With that said, it’s only one day of data and we have a lot more Nov/Dec info ahead of us.

Nov PPI was well above expectations at 1.8% m/o/m (biggest jump since Nov ’07) and up .5% ex f&f vs the estimate of up .8% and .2%. The y/o/y gain, which is benefiting from easy comparisons, rose 2.4% headline and 1.2% at the core. Energy prices rose 6.9% m/o/m and food was up .5%. Helping to boost the core rate was a 4.2% rise in truck prices, more than offsetting the 2% drop in passenger car prices. Inflation in the pipeline is also unfavorable as intermediate goods prices rose 1.4% m/o/m and .3% ex f&f. Crude goods rose 5.7% m/o/m led solely by food and energy which is ok if you don’t eat, drink or drive. While typically the CPI is more of a market mover than the PPI, bonds did trade off and the 10 yr bond yield is rising 3 bps to 3.58% to the highest since mid Aug ’09. The implied inflation rate in the 10 yr TIPS is breaking out to the highest since Aug ’08.

Nov IP rose .8%, .3% above forecasts and Capacity Utilization ticked up to 71.3% from 70.6% in Oct, was .2% above expectations and at the highest level since Dec ’08 but remains well below the 30 yr average of 80%. Production growth was led by the motor vehicle/parts sector which rose by 1.8%. Machinery, computer/electronics and mining production also were up. The improvement in manufacturing has been a key factor in the GDP improvement we saw in Q3 and will likely see in Q4 and this data confirms that belief as companies either slow down their inventory drawdowns or actually start to replenish them again. This of course doesn’t answer the question of what end demand will look like as we enter 2010 but the answer when it comes will determine how sustainable the improvement in industrial production will be.