US Economic Data Hints at Continuing Expansion

Wednesday, June 15, 2005

Recent US economic data mostly confirm Fed chairman Alan Greenspan's remarks from last week, when he said the economy appears to be on a firm footing. The data listed below now raises the question whether the Fed will keep to its measured pace of removing accomodative policy.
Inflation indeed seems to be contained for the moment, but oil prices could cloud this outlook quickly.
OPEC today said high oil prices were less a problem of OPEC output than of refining capacities and continuing high demand for high grade distillates. OPEC raised its production quota another 500,000 barrels to 28 million barrels per day at a meeting in Vienna. This is the fifth production boost in the last 12 months. Oil prices were steady nevertheless as market participants were expecting a supply squeeze in the future.
On the other hand the economy is expanding at a pace that could justify a further tightening. And the housing market should roar ahead based on the continuing growth in mortgage applications.
Stocks and bonds kept to their tight trading ranges in an initial (non) reaction.
Tuesday's data:
Producer Prices May: actual minus 0.6%, consensus minus 0.2%, last 0.6%
Retail sales May: actual minus 0.5%, consensus minus 0.2%, last 1.4%
Wednesday's data:
Business Inventories April: actual 0.3%, consensus 0.4%, last 0.4%
Consumer Prices May: actual minus 0.1%, consensus 0.1%, last 0.5%
NY Empire State Index June: 11.7, consensus 3.0, last minus 11.11
Real earnings: actual 0.3%, last minus 0.1%
TIC data April: actual 47.4 billion dollars, estimate 70, last 40.6
Industrial Production May: actual 0.4%, consensus 0.2%, last minus 0.2%
Capacity utilization: actual 79.3%, consensus 79.2%, last 79.2%
Producer prices and the CPI benefitted from a 2 percent decline in energy prices, the biggest fall since last July, and reductions in the prices for food, cars (GM slashed prices) and computers, which fell 4.8 percent in May. The PPI showed the biggest decline since two years. The CPI fell for the first time in 10 months.
Retail sales fell more than expected but the three month average of plus 0.5 percent might also show up in improved consumer sentiment, due on Friday.
With real earnings rising 0.3 percent month-on-month in May after a slight decline in April consumers have money to spend for the coming holiday season.
Business inventories rose less then estimated, reflecting a cautious perception of future sales.
The NY Empire State Index rebounded in June. the general business conditions index rose fairly sharply to a level of 11.7, recovering much of the cumulative 30-point drop in April and a more than two-year low, the Fed New York reported (pdf). The outlook is seen as somewhat less positive with the index for expected capital expenditures slipping to 13.3, the lowest level in 2 years.
Industrial production came also in on the positive side of estimates, rising 0.4 percent month-on-month.
Treasury inflow capital (TIC) was reported at 47.4 billion for April after a revised 40.6 billion dollars in March. This is far below estimates of 70 billion and far less than the US needs to finance its current account deficit, now in the region of 660 billion dollars. Wait for an extra post on this one.
The Mortgage Bankers Association (MBA) said its seasonally adjusted index of mortgage application activity increased 17.4 or 2 percent to 887.0, adding to the previous week's 6.5 percent gain, Reuters reported. The MBA's purchase index, a gauge of loan requests for home purchases, rose 10.4 percent to 529.3, a record high, after climbing 3.6 percent the previous week.
Fixed 30-year mortgage rates averaged 5.62 percent last week, excluding fees, up 7 basis points from 5.55 percent the previous week.


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