Economic data

After falling 10 pts in March to 67.5, the preliminary April UoM confidence figure was 69.6, slightly above expectations of 68.8. A one point decline in Current Conditions was more than offset by a 3 pt gain in the Economic Outlook. Importantly, one year inflation expectations held steady at 4.6%, the most since Aug ’08. Five year inflation expectations fell to 2.9% from 3.2% and are back in line with the level seen in Feb. Bottom line, consumer confidence continues to be thrown back and forth between an improving jobs outlook on one hand but with an ever accelerating rise in the cost of living on the other hand with modest income growth. As seen in the March retail comps, consumers spent even with a 10 point decline in confidence, thus proving that confidence figures are more anecdotal than anything in gauging the economic outlook. With this said, the Fed looks at inflation expectations and the one yr outlook of 4.6% compares with the 10 yr average of 3.0%.

The April NY manufacturing survey, the 1st April industrial # out, was better than expected at 21.7 vs the estimates of 17.0, up from 17.5 in March and at a one yr high. New Orders jumped to 22.3 from 5.8 but Backlogs were little changed. Inventories fell 5 pts to -1.3. Encouragingly, employment spiked to 23.1 from 9.1 to the best since May ’04. Discouragingly but evident to most of us, Prices Paid rose another 4 pts to the highest since Aug ’08 and Prices Received was up by 6 pts and is just 7 pts from a record (dating back to ’01). The 6 month outlook for General Business Conditions fell for a 3rd month, by 2 pts to 47.4. Mfr’s in the NY region were asked specifically about the Japanese earthquake and “nearly 80% of respondents indicated that the crisis in Japan was having little to no effect on their business.” Likely, the Chicago PMI, because of its focus on the auto industry, will be more impacted by the Japanese disaster and we’ll have to monitor if any other regions feel any impact. The Philly survey is next, next Thursday.

Headline CPI in March rose .5% and 2.7% y/o/y. The core rate was up .1% and 1.2% y/o/y. The headline gain was in line and the core gain was .1% below expectations. The index itself for both rose to fresh record highs. Energy prices rose 3.5% m/o/m and food was up by .8%. Keeping a lid on the core gain was just a .1% gain in OER, the key component I believe will be heading higher this year due to lower apartment vacancies and higher rents. Strangely, apparel prices fell for a 2nd month by .5% and are lower by .6% y/o/y notwithstanding the substantial gain in cotton prices. Either retailers are eating the cost or the 2nd half of ’11 is going to see sharp increases in apparel prices. Commodity prices, 40% of the CPI, rose 1.2% and are up 4.5% y/o/y. Bottom line, inflation is clearly evident at the headline level but statistically and hedonically benign at the core level, the level the Fed is solely focused on. The question though is not if but when the core rate starts to move higher in a more pronounced fashion.