- Import and Export Prices: Strength in the dollar helps keep down imported inflation, evident in the import and export prices report where import prices fell a very sizable 1.0 percent for the first decline since October. Year-on-year import prices are down 0.3 percent for the first decline since October 2009. And it's not just oil! Excluding petroleum, import prices slipped 0.1 percent with the year-on-year rate at only plus 0.3 percent which is the lowest since December 2009.
Export prices are also down, falling 0.4 percent in May despite a 0.7 percent monthly rise in the prices of agricultural exports. Non-agricultural prices, reflecting petroleum-tied declines in industrial supplies, fell 0.5 percent. Year-on-year export prices are down 0.1 percent for their first decline since October 2009.
It's hard to find much pressure in this report with finished goods prices for imported consumer goods unchanged in the month and for capital goods down 0.1 percent. Today's results will not raise any alarms heading into tomorrow's producer price report and Thursday's report on consumer prices.
- Treasury Budget: Eight months into the government's fiscal year, the Treasury's deficit, at $844.5 billion, is very sizable but continues to show improvement, down 8.9 percent vs a year ago. Receipts are up 5.4 percent so far this fiscal year with outlays fractionally lower. For May, the gap comes in almost right on expectations at $124.6 billion.
- Producer Price Index: Lower crude oil prices are working their way into softer inflation again in May. And food prices have weakened. The PPI in May dropped a sharp 1.0 percent, following a fall of 0.2 percent in April. Analysts forecast a 0.6 percent decrease for the headline number. The core PPI, however, advanced 0.2 percent after rising 0.2 percent in April. The market consensus was for a 0.2 percent increase.
By major components, energy fell 4.3 percent, following a decrease of 1.4 percent in April. Gasoline prices plunged a monthly 8.9 percent after falling 1.7 percent the prior month. Food cost inflation dropped to minus 0.6 percent, following a 0.2 percent rise in April.
Within the core, over a quarter of the May rise can be attributed to the pharmaceutical preparations index, which climbed 0.7 percent. For other notable components, passenger cars rose 0.2 percent while light trucks declined 0.4 percent.
For the overall PPI, the year-ago rate in May was 0.8 percent, compared to 1.9 in April (seasonally adjusted). The core rate in May held steady at 2.8 percent. On a not seasonally adjusted basis for May, the year-ago headline PPI was up 0.7 percent, compared to up 1.9 percent for April while the core was up 2.7 percent, matching the pace in April on an NSA year-ago basis.
- Retail Sales: Retail sales in May were pulled down by a decrease in gasoline prices. Retail sales in May declined 0.2 percent, following a 0.2 percent dip in April (originally up 0.1 percent). The consensus projection was for a 0.2 percent decrease.
Motor vehicle sales actually added to sales, gaining 0.8 percent, following a 0.1 percent rise in April.
Excluding motor vehicles, retail sales fell 0.4 percent, following a 0.3 percent decline in April (originally up 0.1 percent). The market consensus was for down 0.1 percent. Gasoline sales dropped a sharp 2.2 percent after declining 1.4 percent in April.
Sales excluding autos and gasoline in May posted a modest 0.1 percent dip, matching the decline in April (originally up 0.1 percent). Core components were mixed but mostly down.
Weakness was led by gasoline stations (down 2.2 percent) and building materials & garden equipment (down 1.7 percent). Also declining were food & beverages, health & personal care, sporting goods & hobby, general merchandise, miscellaneous store retailers, and food services & drinking places.
On the plus side, nonstore retailers gained 1.3 percent, clothing & accessories rose 0.9 percent, electronics & appliances advanced 0.8 percent, and furniture & furnishings increased 0.4 percent.
Overall, consumer spending turned sluggish in May and April was softer than earlier believed. However, a key question that remains is whether atypically warm weather in the winter shifted sales forward at the expense of later months.
- Business Inventories: Sales slowed through much of the economy in April and so did inventory accumulation at least in the factory and wholesale sectors. Business inventories rose 0.4 percent, higher than the 0.2 percent rise in sales but not high enough to drive up the stock-to-sales ratio which remains at a healthy 1.26. Retail inventories in April show a large build against a contraction in sales but the accumulation is centered at auto dealerships where the motor vehicle component of this morning's May retail sales report points to strong sales, sales that likely helped keep dealer inventories down last month. Indications on inventories are steady right now, but a pivot in demand, which may be underway given the slowing in payroll growth and in retail sales, puts the focus on supply managers and their ability to keep inventories in line with sales.
- EIA Petroleum Status Report: Oil supplies remain very heavy, moving above their historical upper limit for the third time in the last six weeks. But refineries, operating at a recovery high 92 percent of capacity, are drawing on the inventories which, despite the movement above the upper limit, still edged 0.2 million barrels lower in the June 8 week to 384.4 million. Volume trends in the wholesale sector are steady for gasoline and slightly lower for distillates, both indicating that moderating prices have yet to boost demand.
- Consumer Price Index: CPI inflation in May turned negative on continued significantly lower energy costs. Meanwhile, the core rate held steady and moderately warm. The consumer price index fell 0.3 percent in May, following no change the month before. The consensus forecast was for a 0.2 percent decline. Excluding food and energy, the CPI gained 0.2 percent, compared to 0.2 percent in April. Analysts projected a 0.2 percent rise.
By major components, energy dropped a monthly 4.3 percent after falling 1.7 percent the prior month. Gasoline declined a sharp 6.8 percent, following a drop of 2.6 percent in April. Food prices were unchanged in May, following a 0.2 percent gain in April.
Within the core, the indexes contributing to the increase were largely the same ones as in April: shelter, medical care, used cars and trucks, apparel, airline fares, and new vehicles. The indexes for household furnishings and operations and for tobacco declined.
Year-on-year, overall CPI inflation eased to 1.7 percent from 2.3 percent in April (seasonally adjusted). The core rate remained at 2.3 percent on a year-ago basis. On an unadjusted year-ago basis, the overall figure was up 1.7 percent in May, compared to 2.3 percent in April while the core was up 2.3 percent, matching April's rate, not seasonally adjusted.
The obvious good news from today's CPI report is that consumers are paying less at the gas pump, freeing up some money to spend elsewhere. Yesterday's 0.2 percent decline in May retail sales turns slightly positive in real terms with the CPI dropping 0.3 percent. But within the Fed, there likely will be diverging opinions on inflation. Headline numbers are favorable but the core is stubbornly on the warm side.
- Jobless Claims: There's no improvement in jobless claims which unfortunately does not point to any improvement for payroll growth or for the unemployment rate. Initial claims rose 6,000 in the June 9 week to a 386,000 level that is a noticeable 9,000 over the consensus. And the prior week is now at 380,000 which is 3,000 higher than the initial estimate. The four-week average is moving in the wrong direction, up three times in a row with a 3,500 gain to 382,000 in the latest week. This is slightly higher than the month-ago comparison which is a negative indication for the June employment report.
Continuing claims have been back and forth, down 33,000 in data for the June 2 week to 3.278 million. The four-week average is down slightly to a 3.282 million level that however is no better than the month-ago comparison. At 2.6 percent, the unemployment rate for insured workers has, in what is good news, been unchanged at a recovery low for the last three months.
This data isn't going to trigger much optimism that the June employment report will be much better than the disappointing reports of May and April. The Labor Department reports nothing unusual in the data.
- Empire State Mfg Survey (Consensus): The Empire State manufacturing index in May rose 10.53 points to 17.09. New orders showed mild acceleration, rising from 6.48 to 8.32. Shipments also showed heavy month-to-month acceleration. (Consensus Range: 5.0 to 16.1)
- Treasury International Capital (Why Investors Care): TIC data have been issued for the past 30 years, but only recently, due to an enormous rise in foreign participation in our markets, have they grabbed the attention of the international financial markets. Although methodologically limited, TIC offers a measure of foreign demand for our debt and assets. Bonds and the dollar are most sensitive to the data, therefore bond and foreign exchange markets are more likely to react to this report than the equity market. Strong inflows (demand for U.S. securities) are needed to keep downward pressure on interest rates. Strong inflows also underpin the value of the dollar since foreigners must purchase dollars in order to buy our securities. A strong dollar helps to maintain stability in all U.S. financial markets. Since foreign ownership of U.S. equities is comparatively small, the equity market is less concerned about this report.
- Industrial Production (Consensus):Industrial production in April jumped 1.1 percent, following a decline of 0.6 percent in March. By major components, manufacturing rebounded 0.6 percent, following a 0.5 percent decrease in March. Motor vehicles led manufacturing with a 3.9 percent monthly surge after a 1.2 percent rise in March. Still, manufacturing excluding motor vehicles gained 0.3 percent, following a 0.6 percent dip the month before. In April, utilities output jumped 4.5 percent. Atypically warm weather held down utilities output in the first quarter and April's number reflects a return to a normal trend. Mining output increased 1.6 percent. Overall capacity utilization improved to 79.2 percent from 78.4 percent in March. Looking ahead, the manufacturing component in industrial production is likely to be negative as production worker hours in manufacturing fell 0.5 percent. (Consensus Range: -0.2% to 0.3%)
- Consumer Sediment (Consensus): The Reuter's/University of Michigan's consumer sentiment index got a sizeable upgrade for May in the final reading for May, indicating a notably more optimistic second half of the month. The consumer sentiment index jumped to 79.3, up nearly 3 points from April and up 1.5 points from the mid-month reading. This last comparison, which put the index at an implied 80.8 over the past two weeks, indicates that the rise in optimism has picked up intensity. Other readings include month-end recovery bests for both current conditions, at 87.2, and expectations at 74.3. (Consensus Range: 75.0 to 78.0)