This was a decidedly mixed week of economic data. Industrial production was quite strong, but housing starts and the Philly Fed were fairly weak.
May Industrial Production
This was the highlight of the week. 1.2% on the headline number, 0.9% on manufacturing, 1.3% on business equipment, construction equipment up 0.8%, and so on. There was not a weak component in the entire report except for mining, which is always quite volatile. Just to make the point about the strength of the recovery in manufacturing, here is a comparison of the past three recessions:
May Housing Starts and Building Permits
If everything about industrial production was good, everything about housing starts was bad. Starts were down 10.0% and permits were down by 5.9%, indicating future weakness in starts. Weakness was widespread and should be expected to continue going forward as the distorting effects of the tax credit wane. I expect there to be many mixed signals in the next few months on housing and don't expect there to be a definitive up-trend until either the end of the year or well into next year. A potential full on relapse in housing with prices and sales falling on a sustained basis is not out of the question, though the magnitudes would be much less if for no other reason that there is not much room on the downside.
Philly Fed and Empire State Manufacturing Surveys
There was a little of a Jekyll and Hyde story here. The Empire State survey came in at nearly 20, which is firmly in expansionary territory. Also, the sub indexes were reasonably solid. The Philly Fed survey came in at just 8.0, which was down sharply from the prior month, and the employment index tipped negative. The six-month outlook remained strong, but this has been wrong before. It's possible that June is simply going to be an off-month and those do happen. Business cycles are not smooth whatsoever. If you ever want a good view of that, look at the Chicago Fed National Activity Index. However, combined with some other indications lately, these sorts of things do get my attention. Keep your eyes peeled for the other surveys that will be coming out shortly.
PPI and CPI
I'll spare you the insufferable look into these two very uninteresting numbers. Both were down on the headline and their core rates were pathetically low. Core CPI came in an a whooping 0.9% increase year on year and is... actually slowing. Inflation is dead and it will be for some time to come. That's the take away. Don't let anyone scare you about inflation. It's dead. Dead as can be. You have more to worry about from asteroids than you do about inflation.
And the rest....
Jobless claims were weak again this week at 472,000. Why this is remains a mystery. Layoffs have clearly abated by nearly every other metric. Why that is not reflected here is puzzling and slightly worrisome.
Weekly retail sales were soft, indicating an easing from May to June. If that holds up, that's a serious problem. If we start hearing the same thing about auto sales, I will start to get worried.
MBA mortgage purchase applications were up this week for the first time in six weeks, albeit from a very reduced level. It appears that we may have hit bottom in the aftermath of the tax credit expiring.
Leading indicators came in reasonably strong, though the reduced pace of growth indicates that the economy may slow in the second half of the year.
The Treasury International Capital report demonstrates continued strong foreign demand for U.S. assets, which we have seen reflected in the stronger dollar.
Finally, import and export prices showed improving terms of trade for the U.S. which may be reflected in narrowing trade deficits in the next couple months. We shall see.