Empire State Manufacturing Index
The big September Empire State bounce to 17.0 almost fully reversed the August drop to 3.7, after a 3-month climb to a 20-month high of 17.2 in July from an all-time low of -78.2 in April. The index has remained in expansionary territory throughout Q3, after four months in contraction. The ISM-adjusted Empire State rose to a 7-month high of 52.7 from 49.3 in August and 52.4 in July, versus an all-time low of 30.8 in April, as this measure rose back above the 50 mark. The sentiment indicators have remained firm through Q3 as production rises in the face of plunging inventories and rising sales. Headwinds from disruptions in some industries and delayed stimulus is proving limited. Expectations are that the August ISM-adjusted average of the major sentiment surveys in September will sustain the July-August rise to 54 from 53 in June, 43 in May and 36 trough in April, versus a 2008-09 bottom of 37.1 in March of 2009. An average of 54 in Q3, after averages of 44 in Q2 and 52 in Q1, is expected.
US Trade Price Index
The US trade price indexes beat estimates with big August gains that extended the May-July bounce, following big declines over the three months through April. We saw trade price gains of 0.9% for imports and 0.5% for exports, with component swings of 2.9% for oil imports and a -2.2% for food exports. Import prices ex-petroleum rose by a sturdy 0.7%, while export prices ex-agriculture rose by an even higher 0.8%. Core prices rose by a solid 0.7% for both imports and exports. Trade price gains reflect the bounce-back in oil prices from April lows and dollar declines that have supported the core price measures. Prices still face an ongoing headwind from a weak global economy. The steep trade price climb is contributing to the rebound underway for the domestic core price measures, as global supply bottlenecks for sectors benefiting from the shifting US consumption basket, as well as a falling Dollar, are boosting input costs for domestic firms. Expectations are for restrained September trade price gains of 0.3% for both imports and exports, as petroleum prices have eased into the month and food prices have stabilized, though core price gains should remain large.
US Industrial Production
US industrial production increased 0.4% in August, weaker than expected, though it’s a fourth monthly gain after the plunge in the spring to the record -12.9% (was -12.8%) nadir in April. This follows an upwardly revised 3.5% (was 3.0%) gain in July. It brings August capacity utilization up to 71.4% from 71.1% (was 70.6%) previously. Strength was seen in manufacturing which rose 1.0% versus July’s 3.9% (was 3.4%) increase. Machinery manufacturing increased 1.0% from the prior 3.1% (was 1.4%) gain. Manufacturing of computers and electronics was up 1.1% from 1.3% (was 0.7%) previously. Manufacturing of motor vehicle and parts was a drag, tumbling -3.7% last month following July’s 31.7% (was 28.3%) gain, and surges of 119.5% (was 118.3%) in June and 113.9% (was 111.0%) in May. Also, utility production dropped -0.4% from the prior 3.8% (was 3.3%) gain. Mining was down -2.5% following the prior 1.4% (was 0.8%) July increase.
The Dollar edged slightly lower following the big industrial production miss, taking USDJPY down a few points to better than two-week lows of 105.32, with the key 105.50 breached and the 105.00 level in clear view ahead of the FED tomorrow and the BOJ on Thursday.
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Stuart Cowell
Head Market Analyst
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