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Industrial Production Declines, US Statistics Continue Uncertain

Posted by Joseph Trevisani on May 15, 2014 1:00:00 PM

The output of the nation's mines, factories and utilities unexpectedly fell in April led by a drop in manufacturing and utilities. 

Industrial production sank 0.6 percent following an upwardly revised 0.9 percent gain in March and the 1.05 percent jump in February, according to the Federal Reserve in Washington, D.C. The median estimate from the Bloomberg survey called for a flat month. Factory production, which is 75 percent of the total and about 12 percent of overall economic activity, decreased 0.4 percent. The decline in utilities partially reversed the weather related gain from March.

The economy is widely expected to rebound from the first quarter's 0.1 percent annualized GDP growth, which is predicted to turn negative upon revision, and most estimates for the second quarter remain in the 2.5 percent to 3.5 percent rage.

Today’s weak production number continues the back and forth in economic statistics this month.

The positive statistics list as follows. The ISM manufacturing index for April was good at 54.9, ahead of the 54.3 forecast and March's 53.7 result, as was the services number turning in 55.0 on a 54.5 prediction and March's 54.2.  

Total vehicle sales in April were 15.98 million annualized. While that was less than the 16.2 million prediction and March's 16.33 million figure, itself an almost six year high, April was still the fourth highest sales month since the recession. All four of those months have occurred since last July.

Non-farm payrolls' 288,000 April increase was likewise far better than the 218,000 forecast and the best reading for the labor economy since January 2012.  Initial jobless claims sank to 297,000 in the latest reporting week, the smallest number in almost six years. Consumer confidence also remained healthy with April's University of Michigan survey at 84.1 close to its post-recession high of 85.1 from last July.

On the negative side average hourly earnings in April were flat, and the yearly gain was just 1.9 percent, less than the April 2.0 percent inflation rate. The labor force participation rate dropped to 62.8 percent in April equaling its 35 year low and was the sole reason the unemployment rate fell to 6.3 percent from 6.7 percent on the month. 

Retail sales rose only 0.1 percent in April, 0.4 percent had been predicted. The so-called 'control group' that mimics the consumption component of GDP  fell 0.1 percent, far below the 0.5 percent forecast and March's upwardly adjusted 1.3 percent score.

Housing  continued to weaken in March with existing home sales, new homes sales, housing starts and building permits all well beneath recent peaks. The NAHB Housing Market Index for May, released today came in at 45, under April's downwardly revised 46 and the 49 forecast. It was the lowest reading in a year.

Yet to come this week and next are housing starts and building permits for April--both are expected to rise, consumer confidence from the University of Michigan for May, a slight  gain to 84.5 is  expected, existing home sales for April, expected 4.67 million annual, March 4.59 million and new home sales for April, 428,000 expected, March 384,000.

Later in the month are April statistics for durable goods, non-defense capital goods excluding aircraft, a closely watched proxy for business investment, personal income and spending, the Conference Board Consumer Confidence Index for May, the S&P CaseShiller Home Price Index for March and the initial revision of first quarter GDP.

This month's statistical misses have not as yet had much impact on the general expectation for second quarter GDP, largely because the released statistics go no deeper into the quarter than April.

However positive forecasts remain for GDP, the bond market seems to be developing a different opinion. Since Monday the yield on the 10 year generic Treasury has fallen 17 basis points from 2.66 percent to 2.49 percent (2:00 pm), dropping 5 points today and 7 yesterday. Yesterday's fall broke through the 2.56 support line which had marked the bottom in yields since early last November. 

Credit markets are clearly worried. Falling interest rates are usually indicative of pending economic weakness.

Today the equity markets have caught the worry bug with all the major American indicies off more than 1 percent as of writing (2:00 pm).  

Joseph Trevisani                                                                                                        

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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