Northern Trust Global Economic Research South LaSalle Chicago, Illinois northerntrust.com Asha G. Bangalore agb@ntrs.com The Hike in Core Consumer Price Index is Temporary May, 9 The Consumer Price Index (CPI) was unchanged in April following a.% drop in the prior month. The energy price index fell.% in April after a.% drop in March. Energy prices are expected to show an increase in the May CPI report, based on the information available so far. The food price index fell.%, the third consecutive monthly decline. In the first four months of the year the CPI has risen at an annual rate of.9% vs. a.9% increase in all of. On a yearto-year basis, the CPI has dropped.7% in April, the second consecutive monthly decline. The last time the CPI fell back-to-back for an extended period was in the 9-9 period (see chart ). Chart CPI-U: All Items % Change - Year to Year NSA, 9-= - 7 7 Source: Bureau of Labor Statistics /Haver Analytics 9 9 - The core CPI, which excludes food and energy, rose.% in April. The BLS indicated that over % of the increase in the core CPI was from higher tobacco prices for the second month. The tobacco price index went up 9.% in April, which reflects the hike in federal excise tax on cigarettes. In addition, the jump in the medical care price index (+.%), higher prices for new cars (+.%), and gains in the shelter index (+.%) were the major gains recorded among the core items of the CPI. Lower prices for clothes (-.%) and air travel (-.%) helped to trim back the advance of the CPI in April. On a year-to-year basis, the core CPI rose.9% in April after holding between.7% and.% for four straight months; the small acceleration reflects the hike in tobacco prices.
Chart CPI-U: All Items Less Food and Energy % Change - Year to Year NSA, 9-=......... 7 Source: Bureau of Labor Statistics /Haver Analytics 9. The threat of inflation is not on the radar screen of the FOMC at the present time, the focus of the FOMC is financial market stability and economic growth. Financial market stability is evolving gradually as seen in the narrowing of spreads between more risky securities and less risky securities (see charts -). Chart Spread: -Month Libor less -Month Treasury Bill Rate (I) 7 Source: Haver Analytics 9
Chart Moody's Baa less -year U.S. Treasury Note Yield percent 7 7 7 Source: Haver Analytics 9 Chart Merril Lynch Junk Bond yield less -year Treasury Note yield percent 7 Source: Haver Analytics 9
Consumer Price Index April 9 % change annualized % change % change prior month year-to-date mo. ago mo. ago Apr-9 yoy Apr- yoy Dec- yoy CPI - ALL ITEMS...9 -.9 -.7.9. CORE - ALL ITEMS LESS FOOD & ENERGY (77.7)*....7.9.. CPI ALL ITEMS LESS ENERGY (9.)......7. FOOD (.) -. -. -.7 -....9 ENERGY (7.) -. -. -. -. -..9 -. SHELTER (.).......9 COMMODITIES (9.) -... -. -.. -. COMMODITIES LESS FOOD & ENERGY (.).....9. -. SERVICES (.)....7... SERVICES LESS ENERGY SERVICES (.).......7 FRB CLEVELAND MEDIAN CPI.......9 * - Figures in parentheses denote the relative importance of each category in the CPI. Factory Production Moderation in Pace of Decline Industrial production dropped.% in April vs. a.7% decline in March. Factory production fell.%, while output of utilities rose.% and that of mining fell.% in April. The decline in factory activity shows a moderation on a month-to-month (chart ) and year-to-year basis (see chart 7). This is the most important aspect of the toady s report. Chart Industrial Production: Manufacturing [SIC] % Change - Period to Period SA, = - - - - - - - 7 9 -
Chart 7 Industrial Production: Manufacturing [SIC] % Change - Year to Year SA, = - - - - - 7 9 - The operating rate of the factory sector edged down to.7% during April from.% in March, which is a new record low. Chart Capacity Utilization: Manufacturing [SIC] SA, Percent of Capacity.. 77. 77. 7. 7. 7. 7. 7. 7. 7. 7... 7 9
Auto assemblies rose to an annual rate of. million units in April, up from.9 million in March. The Chrysler plant shutdowns and GM plant shutdowns in the second and third quarter, respectively, will distort the readings of factory activity in the months ahead. Chart 9 IP: Motor Vehicle Assemblies SAAR, Mil.Units 7 9 Excluding autos, factory production was down.% in April vs. a.% drop in March. On a year-to-year basis, factory output excluding autos fell.% in April vs. a.% drop in March. In conclusion, factory surveys and production data suggest that factory production continues to contract, but the pace of decline has slowed. Chart Industrial Production: Manufacturing Excl Motor Vehicles & Parts % Change - Year to Year SA, = - - - - - - - 7 9 -
Industrial Production April 9 Nov- Dec- Jan-9 Feb-9 Mar-9 Apr-9 Industrial Production* -. -. -. -. -.7 -. Total Capacity Utilization 7. 7. 7. 7. 9. 9. Manufacturing output* -. -.9 -.7 -. -. -. Man. Capacity Utilization 7. 9. 7. 7...7 Capacity Utilization ex. High- 7. 9. 7. 7...9 tech industries High-tech industries - output* -. -. -. -. -. -.7 Manufact. Ex high-tech output* -. -. -.. -. -. * - percent change from prior month Consumer Sentiment Improves in May The University of Michigan Consumer Sentiment Index moved up. points to 7.9 in the preliminary survey for May. The index has now climbed. points from the cycle low of. registered in November. The Current Economic Conditions Index fell. points to. in May, while the Expectations Index rose.9 points to 9 in May. The Expectations Index has advanced. points from the recent low of. posted in February 9. The cycle low was 9. seen in June. Chart University of Michigan: Consumer Sentiment NSA, Q-= (I) 7 7 Source: University of Michigan /Haver Analytics 9 9 7
Key Interest Rates //9 -wk. change, bps -wk. change, bps -yr. change, bps -month Libor. - - -7 -year U.S. Treasury note yield. - - - -year U.S. Treasury note yield. - -7 Next Week s Highlights FOMC Minutes May Date Economic Indicator TNT Consensus Previous //9 NAHB Survey (May).. /9/ Housing Starts (Apr.),,, //9 Initial Jobless Claims 7 Leading Economic Indicators (Apr.).9%.% -.% Philly Fed Survey (May) Global Economic Data Real GDP SAAR, yoy % CPI Unemployment Rate Central Bank Rate NSA, yoy% % year-ago % year-ago United States -. Q- -.7 Mar-9.9 Apr-9. Apr-9. Euro-Area -. Q-. Mar-9.9 Mar-9 7.. Apr-9. Japan -. Q- -. Mar-9. Mar-9.. Apr-9. UK -. Q-.9 Mar-9.7 Apr-9.. Apr-9. Australia. Q-. Q-. Apr-9.. Apr-9 7. Canada -.7 Q-. Mar-9. Apr-9. Apr-9. China. Q-9 -. Mar-9. Q-.. Mar-9.7 India. Q-. Mar-9 -- -- --. Apr-9. New Zealand -. Q-. Q-. Q-9.. Apr-9. Norway. Q-.9 Mar-9. Q-.7. Apr-9. Singapore -. Q-. Mar-9. Q-9.9.9 Apr-9.99 South Korea -. Q-. Apr-9.7 Apr-9.. Apr-9. Sweden -. Q- -. Mar-9 7.7 Mar-9.9. Apr-9. Switzerland -. Q- -. Mar-9. Apr-9.. Apr-9. Taiwan -. Q-. Apr-9.7 Mar-9.9. Apr-9. Thailand -. Q- -.9 Apr-9.7 Mar-9..7 Apr-9. * UK - Claimant Count Unemployment Rate * Thailand - GDP Non-Seasonally Adjusted * EA-, UK, Sweden - Harmonized Unemployment
Historical US Economic Data Apr-9 Mar-9 Feb-9 Jan-9 Dec- Nov- Oct- Sep- Aug- Jul- Jun- May- Payroll Employment () -9-99 - -7 - -97 - - -7 - - -7 % Change, Year Ago * -. -. -. -.7 -. -. -. -.7 -. -. -. -. Unemployment Rate (%).9.. 7. 7........ Avg. Hourly Earnings (% Chg.)............ % Change, Year Ago....7.9.9.9.....7 PPI (% Chg.). -... -. -.7 -. -. -.... % Change, Year Ago * -.7 -. -. -. -.9... 9.7 9.9 9. 7. CPI (% Chg.). -... -. -.7 -....7.9. % Change, Year Ago * -.7 -......7.9.... ISM Diffusion Index (%).....9..7. 9. 9. 9. 9. Industrial Production (% Chg.) -. -.7 -. -. -. -.. -. -. -. -. -. % Change, Year Ago -. -. -. -.7 -.9 -. -.7 -. -. -. -.7 -. Capacity Utilization (%) 9. 9. 7. 7. 7. 7. 7. 7. 77. 7. 7.7 7.9 Nondefense Cap. Goods ex Aircraft - Orders (% Chg.).. -. -.9. -.7 -. -... -. % Change, Year Ago * -9. -. -. -.7-7.9-7.. -.... - Shipments (% Chg.) -.7 -. -9.. -. -.7.7 -.... % Change, Year Ago * -. -. -. -.7 -. -..7 -....7 Retail Sales (% Chg.) -. -...7 -. -. -. -. -. -.7.. % Change, Year Ago -9. -. -. -. -. -. -. -. -.... Real Personal Consumption (% Chg.) -...9 -.. -. -. -. -. -.. % Change, Year Ago -. -. -. -.9 -. -. -. -.... Personal Income (% Chg.) -. -.. -. -. -... -... % Change, Year Ago........9... New Home Sales (SAAR, mn)....7.9...... % Change, Year Ago * -. -9. -. -.9 -. -.9 -. -.7 -. -. -. Existing Home Sales (SAAR, mn).7.7.9.7..9..9.99.9.9 % Change, Year Ago * -. -. -7.. -7. -.9. -. -. -.7 -. Housing Starts (SAAR, mn)..7.9...77...9.9.9 % Change, Year Ago * -9. -9. -.9 -. -. -.7-7. -7. -. -. -. International Trade (Bils $) -7. -. -. -9.9 -. -. -. -. -. -9. -. Q-9 Q- Q- Q- Q- Q-7 Q-7 Q-7 Q-7 Q- Q- Q- Real GDP, Chain Weighted, SAAR -. -. -...9 -.......7 % Change, Year Ago -. -..7......... Chain-Weighted Price Index, SAAR.9..9.........7 % Change, Year Ago.........9... Nominal GDP, SAAR -. -.......9..7.. % Change, Year Ago -.....7.9.....7. Employment Cost Index (%)....7.7...9..9.9.9 % Change, Year Ago...9......... Productivity Nonfarm, SAAR. -...7. -. 7.. -. -. -.. % Change, Year Ago........ -....7 Unit Labor Costs, Nonfarm, SAAR..7. -... -. -.. 9..9 -. % Change, Year Ago......9....7.. Source: Haver Analytics * NSA 9