Wednesday, January 17, 2007

Producer Prices Bounce, TIC Flows Below Estimates, Industrial Production/Capacity Utilization Rise

- The Producer Price Index for December rose .9% versus estimates of a .5% increase and a 2.0% gain in November.
- The PPI Ex Food & Energy for December rose .2% versus estimates of a .1% gain and a 1.3% rise in November.
- Net Long-term TIC Flows for November fell to $68.4 billion versus estimates of $75.0 billion and $85.3 billion in October.
- Industrial Production for December rose .4% versus estimates of a .1% gain and a downwardly revised -.1% decline in November.
- Capacity Utilization for December rose to 81.8% versus estimates of 81.7% and a downwardly revised 81.6% in November.
BOTTOM LINE: Prices paid to US producers rose more than forecast in December, reflecting higher costs for crude oil and gasoline that have since reversed, Bloomberg said. Excluding Food & Energy, intermediate goods’ prices fell .1% after falling .3% in November. The price of US steel sheet, a product most commonly used in cars and appliances, fell 5.3% in December to a 13-month low, according to Purchasing Magazine. Falling demand, purchase delays and surging imports crimped pricing. Costs for passenger cars fell .2% after increasing 2.2% in November. I expect the Producer Price Index to begin another meaningful deceleration next month as the hugely positive effects of the current commodity bear take hold.

International investment in US long-term assets slowed in November as the dollar weakened. The US dollar has since turned higher. Including short-term securities, such as T-bills and so-called non-market transactions, foreigners purchased a net $74.9 billion versus $60.4 billion the prior month. As well, private investors bought a net $101 billion of long-term securities in November, compared with a net $78.9 billion the prior month. I expect foreigners’ appetite for US securities to increase over the intermediate-term as the commodity bear leads to slower growth in emerging economies, an acceleration in US growth to more average levels, stable long-term interest rates, a firmer US dollar and rising US stock prices.

Industrial Production in the US rose more than forecast in December, driven by demand for computers, home electronics and automobiles, Bloomberg reported. Manufacturing, which makes up about fourth-fifths of industrial production, rose .7% last month, the most since June, versus unch. the prior month. Computer production rose 3.1%, auto production rose 4% and home electronics rose 1.9%. I expect industrial production to bounce around current levels before another acceleration in the second-half of the year.

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