There were a few important reports on the U.S. economy released this morning. First, data from the Bureau of Labor Statistics (BLS) showed that wholesale inflation pressures in America increased last month, with the producer price index for final demand (PPI-FD) rising by 0.4 percent in May. This was above the 0.3 percent gain economists had expected, the second month-over-month increase in a row, and the largest sequential gain in more than a year. A 6.6 percent spike in gasoline prices contributed to the headline gain, as did the 0.3 percent jump in food prices. “Core” PPI-FD, which excludes the more volatile food and energy components, also rose in May (+0.3 percent) due in part to a 0.1 percent increase in healthcare services costs. Altogether, core PPI is up only 1.2 percent over the past twelve months, and headline PPI is actually down 0.1 percent on a year-over-year basis. Both of those figures are well-below the Fed’s 2.0 percent “target” for inflation.
Next, a report from the Federal Reserve Bank of New York showed that manufacturing activity in the Northeast region of the country improved this month, with the general business conditions index jumping to +6.01 in June. This was a significantly better rebound than economists had expected and the third positive (expansionary) reading in the past four months. Under the hood, measures of new orders and shipments firmed but total employment fell and the average employee workweek continued to contract. Further, prices received remained under pressure while prices paid (inflation) lifted, providing another example of declining margins. However, surveyed managers were found to be more optimistic about general business conditions over the next six months, and plans for capital expenditures lifted considerably. Overall, this was an encouraging report and many economists are hopeful that the other regional manufacturing activity data released this month will be similarly positive.
Elsewhere, data from the Federal Reserve Board of Governors showed that U.S. industrial activity deteriorated in May, with total production falling by 0.4 percent. This was a worse decline than economists had expected and due largely to a sharp drop in utilities. On a year-over-year basis, industrial production fell 1.4 percent in May, the 9th month in a row of annual declines. Elsewhere in the report, manufacturing, which makes up roughly 75 percent of all industrial production, declined by 0.4 percent in May, and capacity utilization, sometimes used as a leading indicator of inflation and potential output, dropped to 74.9 percent last month, well-below the long-term (1972–2015) average.
Sources: Econoday, Twitter, Bloomberg, ZH, BLS, FRBNY, FRBG, FRBSLPost author: Charles Couch