Economic data

The 1st look at July UoM confidence was awful, falling to 63.8 from 71.5 and was well below expectations of 72.2. It’s the lowest since March ’09. Current Conditions fell to 76.3 from 82 and the Outlook was down 9 pts to 55.8. Any benefit thought to be seen from the decline in gasoline prices, where one year inflation expectations fell to 3.4% from 3.8% (a 5 month low) was more than offset by a still very tough labor market and maybe, but not quantified, only speculated, the circus with our government. While the market obviously responded lower after this very disappointing number, the info is really only anecdotal and a symptom of other hard data we’ve been seeing as consumers don’t always behave in line with how they feel. For this reason, the market didn’t seem to stay down for long.

For the 2nd straight month, the NY manufacturing Fed survey was negative. This time by -3.8, an improvement from -7.8 in June but well below expectations of +5.0 and vs +11.9 in May. New Orders fell 2 pts to -5.5 and Backlogs were down by 12 pts to -12.2. Employment softened to 1.1 from 10.2, the lowest since Dec and the Average Workweek fell to -15.6 from -2.0. Prices Paid fell 13 pts to the lowest since Jan and Prices Received fell by 6 pts to the weakest since Dec. After falling 30 pts in June, the 6 month outlook rose by 10 pts. Bottom line, while weak for a 2nd month, we need to see other regional surveys to gauge a national trend as June saw weakness in the NY and Philly areas only to be trumped by strength elsewhere that resulted in a better than expected national ISM.

Headline CPI did fall .2%, a touch more than expectations of a drop of .1% but the core rate was up .3%, above the estimate of up .2%. It’s the 2nd .3% gain in a row for the 1st time since ’08. The y/o/y headline rise in inflation is now 3.6% and the core rate is up 1.6%. The headline figure was of course set back by the drop in energy prices while the key factor in the higher than expected core rate was a .2% rise in Owners Equivalent Rent, the biggest gain since March ’09. This figure is important because it makes up 25% of CPI and 40% of the core. Apartment landlords are gaining pricing power as vacancies fall as the homeownership continues its decline. This is a secular trend and will result in a further lift in core inflation going forward. Reflecting the historically high cotton prices, apparel prices rose 1.4% m/o/m after a 1.2% jump in May. Vehicle prices rose 1%. Bottom line, June headline inflation, while matching the 3.6% level of May, is at the highest since Oct ’08 with the absolute level of the index at another record high at the same time the US economic remains sluggish. The combination being stagflationary.