PPI Above Estimates, NY Manufactuing Gauge Rebounds Sharply, International Demand for US Assets Healthy, Weekly Retail Sales Surge

- The Producer Price Index for March rose 1.1% versus estimates of a .6% decline and a .3% rise in February.

- The PPI Ex Food & Energy for March rose .2% versus estimates of a .2% gain and a .5% rise in February.

- Empire Manufacturing for April rose to .6 versus estimates of -17.0 and a reading of -22.2 in March.

- Net Long-term TIC Flows for February rose to $72.5 billion versus estimates of $60.0 billion and $57.1 billion in January.

BOTTOM LINE: Headline US producer prices rose more than expected, while core prices decelerated, Bloomberg reported. Core prices rose 2.7% year-over-year. Food prices rose 1.2%, with rice surging 8.7%, the most since 2002. Wholesale energy costs rose 2.9%. Passenger car prices fell .2%, while the cost of light trucks declined .3%. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to 2.35%. However, it remains well below the 2.68% seen a few weeks ago. I still believe inflation fears have peaked for the year and gauges will show substantial moderation by year-end.

Foreign buying of US financial assets rose more than expected in February as international investors purchased Treasuries and agency debt, Bloomberg reported. International purchases of US stocks rose by a net $6 billion. Private investors bought a net $76.7 billion in long-term securities, compared with a net $23.9 billion in January. Foreigners bought a net $19.3 billion of corporate bonds, versus $4.2 billion the prior month. The difference between the trade gap and securities purchased by international investors is an indication of how easily the US can finance its external obligations. I expect foreign demand for US assets to remain strong over the long-term.

A measure of manufacturing in NY state unexpectedly jumped in April as new orders and shipments surged, Bloomberg reported. The Prices Paid component rose to 57.3 versus 50.6 the prior month. The New Orders component rose to .06 from -4.7 the prior month. The Shipments component jumped to 17.5 versus -5.2 in March. The Inventories component rose to -4.2 from -4.5 prior. The Employment component fell to zero from 4.5 in March. Moreover, weekly retail sales rose 2.0% this week, the best showing since the holiday shopping season during the week of December 4th last year. This is up from a .5% increase the week ended March 4^th. This is only one week, but is still a substantial improvement from the month of February, especially considering the unseasonably cold and wet weather in much of the country during that week. Overall, economic data have been showing modest economic improvement of late.