The 2 yr yield went to the high of the morning at 1.55% after September import prices rose one tenth more than expected both headline and ex petroleum. On a y/o/y basis, the headline print was 2.7% (and up by .7% m/o/m driven by hurricane driven rise in energy prices) and ex petro by 1.2%. Food prices jumped 1.8% m/o/m and 2.7% y/o/y and of note durable goods prices spiked by 8.6% y/o/y. The slump this year in the US dollar has helped to reverse the downward trend in import prices. Inflation expectations in the TIPS market though is unchanged today. For perspective, the 2 yr note yield one year ago was .82% and started the year at 1.19%.
2 yr NOTE YIELD
Industrial production in September rose .3% as expected while August was revised to a less worse decline of .7% from -.9%. The manufacturing component was up just .1% vs the .2% rise that was forecasted (August revised up by one tenth so a push) and was down 2.2% y/o/y. The production of motor vehicles/parts was basically flat m/o/m but are still down 3.2% y/o/y as the industry right sizes inventories. After 4 months of declines, machinery orders rose by 3% and are higher by 6.3% y/o/y as the rise in commodity prices have helped. This was also reflected in the .4% m/o/m and 9.8% y/o/y rise in mining. Computer/electronics grew by .9% m/o/m and 2.9% y/o/y and I’m sure the new iphones were influential here.
As for the impact of mostly Harvey (lesser extent due to Irma), IP was negatively impacted by ¼ of a percent according to the Fed.
Capacity utilization was 76%, around the estimate but still remains well below the long term average of 80% which also helps to explain mediocre capital spending trends. Specifically within auto’s where sales have certainly softened, capacity utilization was 79.6% vs 79.5% in August, 76.8% in July (scheduled summer shutdowns) and 80.7% in June.
Bottom line, putting aside the impact of the hurricanes, the auto sector is essentially in recession (getting some relief though from the hurricane driven boost in sales), mining has certainly improved, construction supplies got a hurricane boost and consumer goods and business equipment saw y/o/y gains of around 2%. ‘High tech industries’ also saw a y/o/y gain of 2.3%. This number is never market moving and again so today. That said, watch that 2 yr note yield.
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