Core Producer Prices Fall, Retail Sales Strong, Manufacturing Healthy

- The Producer Price Index for October rose .7% versus estimates of unchanged and a 1.9% increase in September.
- The PPI Ex Food & Energy for October fell .3% versus estimates of a .2% increase and a .3% gain in September.
- Advance Retail Sales for October fell .1% versus estimates of a .7% fall and a .3% rise in September.
- Retail Sales Less Autos for October rose .9% versus estimates of a .3% gain and an upwardly revised 1.4% increase in September.
- Empire Manufacturing for November rose to 22.8 versus estimates of 15.5 and a reading of 12.1 in October.

BOTTOM LINE: Core producer prices declined by the most in more than two years in October, reflecting cheaper cars, computers, food and clothes, Bloomberg reported. Core prices are now rising at a 1.8% annual pace versus a 2.1% rate at this time last year. Companies have had little success passing higher raw materials costs on to consumers. Car prices fell 3% in October, the largest fall in 4 years. As well, clothing prices declined .4%, the greatest drop in almost 4 years. I continue to believe inflation fears for this cycle peaked in September during the hurricanes.

Sales at US retailers fell less than expected last month as pre-holiday shopping at chain stores helped blunt a drop-off at auto dealerships, suggesting that consumers are largely unfazed by higher energy prices, Bloomberg reported. Sales at clothing and accessory stores rose 3.1%, the largest increase in 3 years, even with unseasonably warm weather. Last month was the 17th warmest October in US history. Moreover, sales at gas stations dropped .8% versus a 5.1% gain the prior month as the average price of gasoline fell to $2.77 from $2.95. This holiday shopping season is shaping up to be much better-than-expected.

Manufacturing in NY state expanded more than economists expected and executives were more optimistic about the future, Bloomberg reported. The prices paid component of the index rose to 60.6 from 57.3 in October. The employment component of the index rose to 16.9, the best level this year, from 9.3 the prior month. Optimism for the next six months soared to 46.9 from 32.6 in October. I continue to believe manufacturing will boost US growth over the next few months as inventory rebuilding continues.