Inflation on the rise, claims, Philly mfr’g

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I forgot to mention in my morning note the NY Fed’s Underlying Inflation Gauge which was reported late yesterday. From the NY Fed: “The UIG estimated on the ‘full data set’ increased from a revised 2.84% in September to 2.96% in October. The ‘prices only’ measure increased slightly from 2.27% to 2.30% in October. While the 12 month change in the October CPI showed a slight decline from September, both UIG measures continue to indicate a firming in trend inflation. The UIG measures currently estimate trend CPI inflation to be in the 2.25% to 3.0% range, with both registering above the actual 12 month change in the CPI.”

Maybe this is why short rates are jumping again.

As a reminder with this new data set, this is how the NY Fed explains it: “The ‘prices only’ UIG is derived from a large disaggregated price series in the CPI, while the ‘full data set’ measure incorporates additional macroeconomic and financial variables.” Here is the link to the release yesterday, https://www.newyorkfed.org/research/policy/underlying-inflation-gauge.

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Initial jobless claims totaled 249k, 14k higher than expected. This is up from 239k last week and the Labor Department said that “claims taking procedures continue to be severely disrupted in the Virgin Islands but Puerto Rico officials “are now processing backlogged claims” and maybe the latter is the reason for the upside surprise. The 4 week average did rise to 238k from 231k which was the lowest since 1973. Continuing claims, delayed by a week, fell by 44k to a level last seen also in 1973. Bottom line remains the same in that the level of firing’s is low as the available pool of workers continues to shrink.

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The November Philly manufacturing index fell to 22.7 from 27.9 and that was 2 pts less than expected. This figure is at a 3 month low and below the year to date average of 27.4 but is still at a good level and this number is hugely volatile month to month. As seen in the NY survey, the internals were mixed. New orders and backlogs were up but after falling sharply in October. Employment fell 8 pts after mysteriously spiking by 30 pts last month. The workweek fell too. Of note, inventories fell almost 15 pts to -8.6, the weakest print since October 2016. Remember, an inventory build helped to boost Q3 GDP. Prices paid rose slightly to the highest level since March but prices received fell to the lowest since December.

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After falling about 9 pts last month, the business activity 6 month outlook was up by almost 4 pts. Capital spending plans fell 1 pt to a 5 month low. Maybe business is waiting on the new tax bill and the investment spending incentive.

Bottom line, this number has become so all over the place each month that it’s almost becoming irrelevant and rarely market moving. As an example, new orders were 25.9 in June, 2.1 in July, 20.5 in August and printed 21.4 for November. What did July tell me? Employment was 10.1 in August, 6.6 in September, 30.6 in October and 22.6 today. Not helpful in gauging a trend.

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Import prices in October was up by .2% headline and .1% ex petro. With the upward revision to September, the figures were about in line. Versus last year, headline import prices were up by 2.5% and 1.4% ex petro. On the latter, that matches the quickest pace of gain since March 2012.

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There wasn’t much of a change in US Treasuries to the data. The 2 yr yield was down a hair to 1.70-1.71% from firmly at 1.71% just before. The 10 yr yield fell ½ a bp.