Wednesday, August 31, 2005

GDP Still Healthy, Chicago PMI Plunges, Distillate Inventories Rise Above Estimates

- Preliminary 2Q GDP rose 3.3% versus estimates of a 3.4% gain and a prior estimate of a 3.4% increase.
- Preliminary 2Q GDP Price Index rose 2.4% versus estimates of a 2.4% gain and a prior estimate of a 2.4% increase.
- Preliminary 2Q Personal Consumption rose 3.0% versus estimates of a 3.4% gain and a prior estimate of a 3.3% increase.
- The Chicago Purchasing Manager Index for August fell to 49.2 versus estimates of 61.0 and a reading of 63.5 in July.
- The EIA reported that crude oil inventories fell 1.52 million barrels vs. estimates of a rise of 1.0 million barrels. Gasoline inventories dropped 508,000 barrels vs. estimates of a 1.63 million barrel decline. Distillate inventories rose 2.75 million barrels vs. expectations of a 1.5 million barrel build.


BOTTOM LINE: The US economy expanded at a 3.3% rate in the second quarter. The Core PCE Price Index, the Fed’s favorite inflation gauge, rose 1.6% in the second quarter versus a 2.4% increase in the first quarter. Growth in the US economy has exceeded 3% for nine straight quarters, the best stretch since the 13 quarters that ended in January-March 1986, Bloomberg reported. A measure of demand, excluding inventories, rose 5.4% in the second quarter. Personal incomes rose at a 6.3% annual rate in the second quarter, twice as much as the Consumer Price Index. Rising incomes have boosted the US economy substantially even as energy prices reach records.

Manufacturing in the Chicago area unexpectedly contracted in August for the first time since April 2003, suggesting record oil prices are slowing factory demand, Bloomberg said. The new-orders component of the index fell to 46.5 from 69.6. The prices paid component rose to 62.9 from 61.3. The employment component of the index fell to 51.7 from 56.6. This sharp move lower is a worrisome development considering the recent spike in energy prices.

The EIA numbers would normally be viewed as bearish for oil.

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