The Boock Report

By

Manufacturing and prices

United States

Initial jobless claims totaled 237k, 4k less than expected and down from 245k last week. As a 233k print fell out of the 4 week average, it rose by 1k to 243k. Continuing claims, delayed by a week, was up by 6k. Bottom line, the pace of firing’s remain modest for reasons stated here many times.

After falling into contraction in May, the NY manufacturing index in June bounced sharply to 19.8, well above the estimate of 5. New orders spiked to 18.1 from -4.4 and vs 7 in the month prior. It peaked at 21.3 post election. Backlogs rose 8.3 pts after falling by 16.1 pts in May. Inventories also rebounded. Employment did fall by 4.2 pts to a 4 month low while the average workweek was up by 1 pt. Prices paid fell about 1 pt but to the lowest level since November. Prices received was higher by 6.3 pts after dropping by 8 pts in May. As for the 6 month outlook, the business activity index was up by 2.4 pts to 41.7. It got as high as 49.7 in December. Capital spending plans were mixed. Capital expenditures rose by 7.4 pts after falling by 14.3 pts last month but the tech spending component was lower by 2 pts.

Bottom line, smoothing out the monthly volatility in this index puts the 3 month average at 8 which compares with the 6 month average of 10.9 and many negative prints before the election. Let’s call manufacturing growth as still modest.

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The Philly regional manufacturing index in June fell to 27.6 from 38.8 but it still was slightly ahead of the estimate of 24.9 and is still at a good level. For perspective, the 6 month average is 31.4. New orders were up a touch at 25.9. Backlogs rose by 5 pts to 14 and inventories grew as well. Similar to NY, the employment component was down by 1.2 pts to 16.1 and the workweek was down slightly too. Prices paid fell less than 1 pt but prices received rose to match a 5 yr high, also similar to the trend seen in the NY region. The fly in this data was the 3.5 pt drop in the 6 month outlook which is now at the lowest level since June 2016. Part of this weakness was a 15 pt drop in the outlook for new orders and an 8 pt fall in backlogs. Cap ex plans fell by 4 pts to a 4 month low.

Bottom line, while still at a high level, the tempered 6 month outlook in the Philly region cools a bit the impact of the current conditions. Again, the pace of manufacturing is modest but we know that already. Export orders (not a category in these regional surveys) likely are holding up in June but anything connected to the auto sector is now under pressure.

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Lastly, import prices in May fell .3% m/o/m all because of a drop in petro prices and more than the estimate of down .1%. Ex this and also food, prices were flat m/o/m. On a y/o/y basis, prices are higher by 2.1% but just .6% ex food and energy. Bottom line, the inflation rate of change stats are clearly moderating and it’s amazing the hand ringing so many are doing about the Fed raising rates in the face of this. For perspective and stating the obvious, the Fed has raised rates all of 4 times in the 9th yr of an expansion and rates are still ridiculously low historically. Also, it should be perfectly clear that the Fed still believes in the Phillips Curve and as long as the labor market remains tight and possibly gets tighter, they will be more inclined to tighten monetary policy because of this.