PPI Rises More Than Estimates, Consumer Confidence Falls More Than Estimates

- The Producer Price Index for January rose 1.0% versus estimates of a .4% increase and a downwardly revised .3% decline in December.

- Consumer Confidence for February fell to 75.0 versus estimates of 82.0 and a reading of 87.3 in January.

BOTTOM LINE: Prices paid to US producers rose more than forecast in January, Bloomberg reported. Core producer prices rose 2.3% in January from year-ago levels. Energy costs rose 1.5% as the price of gas gained 2.9% during the month. The 10-year TIPS spread, a good gauge of longer-term inflation expectations, is rising 4 basis points on the report to 2.44%. However, this is still 4 basis points below levels seen in November and 13 basis points below the peak in June of last year at 2.57%. There remains a 92% chance for another 50 basis point fed funds cut at the upcoming March 18^th meeting and an 8% chance of a 25 basis point cut. I suspect inflation worries will peak for the year over the next couple of months and gauges will show meaningful deceleration in the second half of the year.

Consumer confidence fell more than forecast in February, Bloomberg reported. The Present Conditions component fell to 100.6, slightly below the long-term average of 102.8, from 114.3 the prior month. The Expectations Component fell to 57.9, the lowest since January 1991 at the beginning of the Gulf War, from 69.3 the prior month. The S&P 500 had already put in place a major bottom in October of 1990 at the time of that reading. The spread between what consumers say now about their current financial situation and what they feel about the future remains historically wide. The percentage of consumers planning to purchase a home rose to 2.7% from 2.5% the prior month. As well, those planning to purchase a large appliance rose to 30.9% from 30.6% in January. Consumer confidence in the Northeast Central region is at an extraordinarily depressed 43.3. Depressed sentiment in the northern part of the country continues to weigh heavily on the overall gauge. Sentiment in the Southwest Central and Mountain regions came in at a healthy 109.3 and 104.9, respectively. According to Intrade.com, the odds the US enters recession this year have fallen to 63.9% from 77.5% last month. I suspect this will mark the low point in consumer confidence for the year.