Economic data

May Industrial Production rose 1.2%, above expectations of a gain of .9%. The jump was led by a sharp 5.5% rise in motor vehicle/parts production and also a 4.8% gain in utility output in what was one of the hottest months on record. Capacity Utilization moved up to 74.7% (highest since Oct ’08) from 73.7% and vs the forecast of 74.5% but still remains well below the long term average of 80%. In particular, capacity utilization in the motor vehicle sector rose to 56.8% from 53.7% to the highest since Sept ’08. Bottom line, manufacturing has seen an amazing recovery following an extraordinary falloff in inventories in late ’08, early ’09. The rebound in rebuilding inventories and boost given to business from overseas is now reaching its biggest test in the recovery as end demand in the US still remains fragile and Europe of course faces a sovereign and banking credit crunch.

May Housing Starts in a post tax credit environment were below expectations as were Permits, both solely led by the single family category as multi family saw gains. Starts were 55k below forecasts at 593k, the lowest of the year and Permits were 51k below the estimate at 574k, the lowest since Oct ’09. It should surprise no one that the pace of construction is now slowing after the artificial boost of the tax credit and yesterday’s weak NAHB home builder survey certainly highlighted the trepidation on the part of the industry to its expiration and the competitive threat of foreclosures and short sales. The estimates for today’s figure being elevated was likely due to the belief that the surge in contracts signed in the previous few months resulted in the shovel hitting the dirt in May.

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