Import Prices Fall, NY Manufacturing Soars, International Purchase of US Securities Healthy, Builder Outlook Muted

- The Import Price Index for February fell .5% versus estimates of a .6% decline and a 1.4% rise in January.
- Empire Manufacturing for February rose to 31.2 versus estimates of 18.9 and a reading of 21.0 in January.
- Net Foreign Security Purchases for January rose to $66.0 billion versus estimates of $64.8 billion and $53.8 billion in December.
- The NAHB Housing Market Index for March fell to 55 versus estimates of 56 and a reading of 56 in February.

BOTTOM LINE: Prices of goods imported to the US fell in February, reflecting declines in costs of petroleum and chemicals and the biggest drop in imported food costs in four years, Bloomberg said. Moreover, the price of industrial supplies excluding petroleum declined 2.2%, the largest fall since April 2003. Import prices should decelerate through year-end as commodity prices weaken further.

Manufacturing in NY state unexpectedly accelerated this month to the highest level since July 2004, encouraging factories to step up the pace of hiring as the US economy strengthens, Bloomberg said. The employment component of the index rose to 21.8, the highest level since May 2004. The new orders component increased to 29.2, the best since August of last year. Finally, the prices paid component of the index fell to 40.2 and has plunged 47% from Sept. 2005 highs. I continue to believe manufacturing will add to US growth over the intermediate-term as companies gain confidence in the durability of this expansion.

International investors increased their holdings of US assets by $66 billion in January, Bloomberg reported. January’s net gain is above the five-year average of $56 billion. Caribbean banking centers, which represents many hedge funds, decreased their Treasury holdings by $13.3 billion. Foreigners’ holdings of US stocks rose by $21.2 billion. I expect international investors’ appetite for US assets to rise further over the intermediate-term as commodity prices fall, the dollar remains firm, US stocks rise and the US economy remains relatively strong versus other industrialized nations.

Optimism among US homebuilders fell in March to a three-year low in response to rising long-term mortgage rates, Bloomberg said. Readings greater than 50 indicate builders think the outlook for sales is bright. I continue to believe housing is slowing to more healthy sustainable levels.