Producer Prices Plunge, International Demand for US Securities Soars to Record, Industrial Production Falls, Capacity Utilization Declines

- The Producer Price Index for September fell 1.3% versus estimates of a .7% decline and a .1% increase in August.
- The PPI Ex Food & Energy for September rose .6% versus estimates of a .2% gain and a .4% decline in August.
- Net Foreign Security Purchases for August rose to $116.8 billion versus estimates of $56.5 billion and $32.9 billion in July.
- Industrial Production for September fell .6% versus estimates of a .1% decline and unch. in August.
- Capacity Utilization for September fell to 81.9% versus estimates of 82.2% and 82.5% in August.

BOTTOM LINE: Prices paid to US producers fell last month by the most since April 2003 as energy costs plunged, Bloomberg reported. The core ppi rose .6%, due to a temporary jump in auto costs. Excluding cars and trucks, the core ppi rose .1%. The PPI rose .9% over the last 12 months versus a 3.7% gain reported in August. Energy prices fell 8.4%, the largest decline since 1986. The price of gasoline plummeted a record 22%. In my opinion, the surge in auto prices that led to the above-expectations core ppi report is either incorrect, and will be revised lower, or temporary. I continue to believe most measures of inflation will decelerate over the intermediate-term.

International investment in US securities surged to a record $116.8 billion in August, Bloomberg reported. Demand for US assets by foreigners soared after the Fed ended two years of rate hikes and reports showed inflation decelerated ad consumer spending rose. Purchases of US Treasury securities rose a net $46.3 billion versus $6.6 billion the prior month. I expect international demand for US assets to remain strong over the intermediate-term as the dollar remains firm, stocks rise, interest rates remain low and commodities continue to fall.

Industrial production in the US fell more than forecast last month as auto, furniture and electronic equipment makers scaled back and cooler weather reduced demand for electricity, Bloomberg said. Capacity utilization is now back near the long-term average of 81%, which is a positive for a further deceleration in inflation readings. Cooler than average temperatures in the US cut electricity demand. Auto and parts production declined 2.1% versus a 1.9% gain the prior month. I expect industrial production to rise modestly next month as inventory rebuilding accelerates.