Inflation Decelerates, NY Manufacturing Healthy, International Demand for US Assets Near Record, Production Rises

- The Consumer Price Index for July is estimated to rise .1% versus estimates of a .1% gain and a .2% increase in June.

- The CPI Ex Food & Energy for July rose .2% versus estimates of a .2% increase and a .2% gain in June.

- Empire Manufacturing for August rose to 25.1 versus estimates of 18.0 and 26.5 in July.

- Net Long-term TIC Flows for June fell to $120.9 billion versus estimates of $63.0 billion and $126.0 billion in May.

- Industrial Production for July rose .3% versus estimates of a .3% increase and a .6% gain in June.

BOTTOM LINE: Consumer prices in the US rose .1% in July, the smallest gain in eight months, after Americans paid less for gasoline and food costs moderated, Bloomberg said. So far this year, core prices are rising at a 2.3% rate versus a 3% rate in the first seven months of last year. The headlines CPI rose at a 2.4% rate year-over-year versus the long-term average of 3.1%. Gasoline prices fell 1.7% during the month of July. Food prices rose .3% versus a .5% increase in June. Auto prices were unch. for the second month in a row. I continue to believe inflation will decelerate further over the intermediate term as energy and food prices fall meaningfully from current levels.

Manufacturing in NY state unexpectedly held near the highest level in more than a year in August and companies were more optimistic about the future, a Federal Reserve report showed. The component measuring the outlook for the next six months rose to 50.4 from 48.2. The Prices Paid component fell to 34.4 from 34.6 the prior month. I continue to believe manufacturing will help boost overall growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories.

International buying of US securities unexpectedly held close to an all-time high in June, Bloomberg said. International demand for US government debt, mostly by central banks, doubled in June. China reduced its holdings of US Treasury securities for a third straight month, by $2.3 billion, to $405.1 billion. International investors’ holdings of US stocks rose a net $28.8 billion. The difference between the US trade deficit and securities bought by international investors is a gauge of how easily the US can finance its external debt. I continue to believe international demand for US assets will stay strong over the intermediate-term.

Industrial production in the US rose in July as manufacturers turned out more computers, motor vehicles and business equipment, Bloomberg said. Utility production declined 2.1% on cooler weather. Weather this month has turned warmer nationwide. Capacity Utilization came in at 81.9%, slightly above long-term average levels. I expect Industrial Production to rise more this month and capacity utilization to inch slightly higher.