Economic Data Summary: Week Ending May 21st, 2010

The data released in the past week were mixed, the first week in a while where that was true, however there does not seem to be much of a change in the overall trend of steady, moderate economic growth.

April Consumer Price Index (CPI)

This is the measure of prices paid by consumers for a pre-determined basket of market goods. Along with the PCE deflator, it is one of the two primary methods for determining the rate of inflation for consumers.

In April, the headline number fell 0.1% and is up 2.2% year on year. The April decline was driven by lower energy prices and that trend will probably continue for a couple more months with the recent decline in crude oil prices as well as gasoline and natural gas prices. The core rate, less food and energy, was flat for the month and is up 0.9% year on year. Inflation is very modest and there are few signs that it will accelerate soon in any meaningful way.

April Producer Price Index (PPI)

This is essentially the CPI for businesses, focusing on manufacturers in particular. There's really not much more to say about it except to say that, along with the CPI, these releases can move markets when there are concerns about Federal Reserve interest rate moves. This is because when markets are on edge fearing rate hikes, strong inflation numbers will change interest rate expectations to the upside and hurt equity and bond prices.

Like the CPI, the headline number was down 0.1% month on month, driven by energy. Year on year, the finished goods index was up 5.5%, which would look scary under most circumstances. However, as recently as July of last year the PPI was down 6.9% year on year so the comparisons are somewhat skewed. PPI is subject to much more wild swings than CPI because changes in raw materials prices are felt more rapidly and are not moderated by the fact that not all price increases are passed on to consumers.

April Housing Starts



Considered one of the leading indicators of the housing market due to the simple relationship that in order for new homes to be sold, they must be built. Similarly, in this release there is also a measure for building permits. Once again, for houses to be built, there must be permits issued for their construction. Markets care because historically housing starts have been an important leading indicator for the economy at large and residential investment is one of the first sectors to historically turn up at the beginning of an economic expansion.

April numbers were fairly strong and housing starts are up considerably, on a percentage basis, from their multi-decade low in early 2009. Single family housing starts were up 10.1% month on month while multi-family units lagged. However, as you can see below, they still have a long way to go to even get back to their early 2008 levels, which were down considerably from 2005 levels.

Also, building permits were weak, indicating that the strength we have seen lately may not be repeated in the near future. However, these data are somewhat volatile which is why even though they are seasonally adjusted, some analysts prefer to use a multi-month (either 3 or 6) moving average.

May Philadelphia Fed Manufacturing and May Empire State Manufacturing Surveys 


We have talked enough about manufacturing diffusion indices that I should be able to cut right through these.

The Empire State number, on both headline and component parts, showed continued growth, though at slowing paces. The Philly Fed headline number came in stronger than April, though new orders slowed down somewhat. Markets did not seem to react very much to either number and frankly I don't think there was much to respond to here. Month to month fluctuations are fairly normal. We'll see what happens next week with the Richmond Fed, Kansas City Fed, and Chicago PMI.

Jobless Claims


This was a notably weak number last week with claims rising somewhat sharply from 446,000 to 471,000. However, I am not too concerned by this for one reason which is that the seasonal adjustments this time of year are not very reliable and the surge here was entirely due to a normal seasonal pattern that may or may not apply this year. Non-seasonally adjusted claims barely moved at all. That being said, look at the numbers next week. If they stay at this level or rise, that is worrisome.

Others 


Mortgage Banker Association purchase applications fell sharply, as was expected with the expiration of the homebuyer tax credits. This will be part of a trend for several months of distorted housing data. It will be very hard to tell what is actually happening in real estate for some time.

Weekly retail sales indicators were weak-ish, but it's hard to tell exactly what the trend has been here.

Conference Board Index of Leading Indicators fell in April, indicating a potential slowing of the recovery in the next few months. Both this index and a couple of others have been influenced by softer financial markets and mixed real estate indicators.

As always, look at the Bloomberg Economic Calendar for summaries of all releases each week.