Today's Economic Reports Analysis

By The Greek - Economy & Markets:

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Today's economic reports did not really offer much revelation, but the information conveyed is interesting just the same. The day brought data on consumer prices, industrial production, consumer sentiment and long-term securities trade.

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Consumer Price Index (CPI) - December
Today's report on December's CPI offered good news. Core prices, or those excluding volatile food and energy, were unchanged, versus expectations for a 0.1% increase. Prices fell almost across the board, excluding medical care and education & communication segments. These were offset by decreases in the prices of lodging away from home, airline fares, new and used motor vehicles, apparel and recreation. Perhaps surprising to you, rents rose, but with home ownership under pressure, rental demand may temporarily benefit in reasonably priced segments. Eventually though, we would expect intensifying price sensitivity to pressure the rental market.

Headline CPI declined 0.7% in December, against the consensus forecast for a 0.9% drop. Energy was the key component to the move, as those prices fell 8.3%, driven by a 17.2% decrease in gasoline. Despite rising prices on the producer level, consumer prices for food goods decreased fractionally.

The 12-month period comparison produced a 0.1% increase, the smallest since 1954's price decline. However, the meaningful rise of the year before (4.1%), largely attributed to volatile energy and commodity prices, offers defining color to the numbers. It's also interesting that most of the year's defining price action came in the last quarter. In any event, inflation seems in hiding for now, but we should be careful not to let the economic enemy sneak up behind us.

Industrial Production Report - December
As expected, industrial production fell and capacity utilization eased. However, the degree of deterioration was not correctly foreseen. Production fell 2.0%, versus the expert view for a 1.0% drop. Meanwhile, Capacity Utilization contracted to 73.6%, compared against an anticipated 74.6% reading.

Despite the degree of demise, this report should not come as any surprise. The manufacturing sector, especially auto and related businesses, is contracting now at an intense pace. Production at mines, which is also measured by the report, is also down. December's overall production levels were off 7.8% from a year ago.

Treasury International Capital - November
The Treasury International Capital Report, or TIC, shows the flow of funds into or out of long-term securities between the U.S. and international investors. The bad news is that foreigners are selling off American securities on net, $56 billion worth in fact. The sad news is that Americans are selling off foreign securities too ($34.3 billion), leaving the TIC at negative $21.7 billion.

Even so, the $56 billion accounted for just 1.8% of the total value of all foreigners' transactions in U.S. securities in November. So, even though it looks like a big scary number, and like foreigners are abandoning us, it's all relative to a much larger transaction count. What some of you might find troubling though is that "official institutions" (vs. private investors) sold off a significant bit of Treasury Bonds and Notes in December, though again a relatively insignificant amount. Still, it's the monthly difference that bothers me.

Look at the numbers:

Nov: -$26.2 Billion
Oct: -$1.1 Billion
Sep: +$4.9 Billion
Aug: +$4.8 Billion

Does this signal the beginnings of dollar destruction? Recall, China and oil producing nations have been funding our Treasury budget irresponsibility, and should they stop doing so, we may find ourselves unable to fund ongoing budget needs. Nothing like force feeding responsibility, but what happens when social security and medicare turn from surplus to deficit, and then to monster deficit. How will we fund anything? What will the dollar be worth then? Buy gold for long-term holdings if you are as worried about this as I am.

Reuters/Michigan Sentiment
Today's Reuters/University of Michigan Consumer Sentiment Survey showed improvement, but not meaningfully so. January's preliminary measure read 61.9, versus 60.1 at last check, and against consensus expectations for 59.0. My father has a great saying that perfectly describes the insignificance of this data. He says, "when you are already soaking wet, a little more water is of no concern." This reading is still too close to the measure's half-century low mark. We're drowning in it folks!

I found it telling that the expectations measure was significantly lower than the current conditions component of the index. The sentiment reading says consumers are dug in deep for the long haul. Despite cheap gasoline and sales galore across the retail space, consumers are more concerned about their future security than they are about living it up now.

Don't look toward Obama to change that either. In fact, he would be wise to set the bar low and pound home the fact that times are really tough now. By doing so, he would have nowhere to go but up in public opinion polls, as the economy improves even ever so slightly. He might remove himself from any future blame as well, and it would increase his already slim chances of reelection in my opinion.


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