Higher headline inflation finally showed up in core PPI as it rose .5% m/o/m, the fastest pace since Oct ’08 and the y/o/y core rose 1.6%, matching the highest since Sept ’09. Headline PPI rose .8% m/o/m, in line with expectations and are now up 3.6% y/o/y. Inflation in the pipeline was also robust as intermediate goods prices rose 1.1% m/o/m, 6% y/o/y. Crude goods prices, the 1st stage of production, rose 3.3% for the month after a 6.5% gain in Dec and is now up 10% y/o/y and core crude goods prices are up 25.6% y/o/y. Headline PPI was led by a 6.9% rise in gasoline prices. Food prices rose .3%. The main factor in the core gain was a 1.4% rise in prescription drug prices. Overall, consumer goods prices rose .9% m/o/m and capital equipment rose .3%. With respect to Treasuries and notwithstanding today’s data, their eyes will be on CPI tomorrow to see what pricing power companies have.

Bring on the renters. Jan Housing Starts were well above expectations at 596k annualized vs the est of 539k. The gain though was solely in the multi family category where starts jumped to 183k from 103k. Single family starts actually fell by 4k to 413k, the lowest since May ’09. Single family permits also fell as they did for multi family. With the secular fall underway in the home ownership rate combined with falling vacancies in the apartment sector, multi family building is rightly responding with supply. Starts for single family homes remain expectedly weak and while an impediment to GDP growth, should be welcome considering the still large supply of existing homes for sale.

Jan Industrial Production unexpectedly fell .1% vs the expected rise of .5% but this was partially offset by an upward revision to the Dec data which showed a rise of 1.2% vs the initial reading of up .8%. Utility output, likely due to the winter storms, has been a swing factor over the Dec/Jan timeframe. Utility output rose 4.1% in Dec m/o/m and then fell 1.6% in Jan. Mining also fell .7% in Jan after a rise in Dec. Motor vehicle/parts production was strong, rising 3.2% and machinery and computer/electronics production were up. Capacity Utilization was 76.1% vs 76.2% in Dec and remains still firmly below the long term average of about 80% and is part of the output gap theory of the Fed in keeping their inflation expectations in check, notwithstanding the rising real world market prices now clearly evident.

Category: MacroNotes

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