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Empire Manufacturing Kicks Off Weak Q3 GDP, CPI Lower Than Expected On Gas Price Drop As Core Price Increase Continues

Tyler Durden's picture




 

So much for the Empire Manufacturing index being a harbinger of an economic pick up. With virtually everyone on Wall Street expecting a positive print, with the average at +5.00, the actual number of -3.76 comes as yet another confirmation of the (f)utility of Wall Street groupthink. While it was a modest bounce from the June -7.79, this first July manufacturing indication, which coming negative means the contraction is now well into its second month, and has ugly undertones for Q3 GDP, which we expect most banks will revise their expectations lower in the aftermath of yesterday's JPM downgrade of the US economy. And while there was some good margin news with Prices Paid dropping by 13, or more than Prices Received which declined by 6 points, a far more troubling indicator this month is the collapse in the Number of Employees Index to 1.11 from 10.20, or the lowest of 2011. This is not good for July NFP numbers after the already atrocious June employment data. Elsewhere on the inflationary front, CPI missed expectations of a -0.1% drop, instead printing at -0.2%, the lowest since June 2010. The reason was the 4.4% plunge in the Energy Index, the largest drop since December 2008. That said, the core CPI was unchanged at 0.3%, higher than expectations of 0.2%, due to increases in prices for shelter, apparel, new vehicle, used cars and trucks and medical care. In other words: all the things that people need right after food and gas. We would venture to guess that in addition to S&P < 1,000, core CPI coming in negative is the other QE3 gating factor.

Empire:

CPI:

More on the CPI from the release:

The gasoline index declined sharply in June, falling 6.8 percent. While this decrease was the major factor in the seasonally adjusted decline in the all items index, the index for household energy declined as well. In contrast, the index for all items less food and energy increased 0.3 percent for the second consecutive month. The indexes for shelter, apparel, new vehicles, used cars and trucks, and medical care all continued to rise in June.

The food index increased as well, although the 0.2 percent rise was the smallest of the year. The index for food at home increased 0.2 percent, with major grocery store food groups mixed. The indexes for fruits and vegetables and for meats, poultry, fish, and eggs both declined, and while the other major grocery store food group indexes all increased, none rose more than 0.6 percent.

Yes, energy declined but food prices continued to rise:

The energy index, which fell 1.0 percent in May, declined 4.4 percent in June, the largest decline since December 2008. The gasoline index, which fell 2.0 percent in May, declined 6.8 percent in June. (Before seasonal adjustment, gasoline prices fell 5.8 percent in June.) Despite the recent declines, the gasoline index has increased 35.6 percent over the past 12 months. The index for household energy also decreased in June, falling 1.2 percent after rising 0.5 percent in May. The index for natural gas rose 0.4 percent, but the electricity index declined 1.6 percent and the index for fuel oil fell 2.2 percent. The household energy index has risen 2.8 percent over the last 12 months, with the fuel oil index up 37.3 percent and the electricity index up 1.5 percent but the index for natural gas down 0.8 percent.

The food index rose 0.2 percent in June after rising 0.4 percent in each of the prior two months. The index for meats, poultry, fish, and eggs turned down in June, falling 0.4 percent after increasing more than one percent in each of the previous four months. The fruits and vegetables index declined for the third month in a row in June, falling 0.3 percent as the fresh vegetables index continued to decline. In contrast, other major grocery store food groups increased. The index for cereals and bakery products rose 0.6 percent in June, and the dairy and related products advanced 0.5 percent, as did the index for other food at home. The index for nonalcoholic beverages increased 0.3 percent as the coffee index continued to rise. The index for food at home has risen 4.7 percent over the last 12 months, with all the major groups increasing 3.2 percent or more. The index for food away from home rose 0.3 percent in June after rising 0.2 percent in May.

And yes, owners' equivalent rent of primary residence continues to surge as the housing "inflation" story persists in the alternative to owning.

Goldman's take:

MAIN POINTS:
1. The overall Consumer Price Index (CPI) declined by 0.2% (mom) in June, reflecting lower energy prices. However, beyond this component the report showed firm inflation trends. The core CPI rose by 0.3% (0.254% unrounded), more than the consensus forecast. In contrast to our expectations, inflation in vehicle (+1.0% mom) and apparel prices (+1.4%) remained quite strong. In addition, owners equivalent rent inflation accelerated to +0.15% from +0.10% last month (inflation in rent of primary residence was about unchanged). We continue to believe that recent high core readings partly reflect the impact of temporary factors-for instance, high commodity prices in the case of apparel and supply chain problems caused by the events in Japan in the case of vehicles. However, the higher trend has now persisted for some time (the six-month annualized change in the core is +2.5%).

2. The Empire index rose merely 4 points (from -7.79 to -3.76) in July, falling short of expectations which looked for an increase to +5. The composition of the report was mixed: new orders declined by around 2 points to -5.45 but shipments rose by around 10 points to 2.22. The employment index and the inventory index declined (down 9 points to 1.11 and down 7 points to -5.56, respectively).

 

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Fri, 07/15/2011 - 08:54 | 1458974 ads56
ads56's picture

Transitory.

Fri, 07/15/2011 - 09:11 | 1459023 Xibalba
Xibalba's picture

looks good for 20 ES overnight pts....

 

 

/barf.

Fri, 07/15/2011 - 09:16 | 1459030 bankrupt JPM bu...
bankrupt JPM buy silver's picture

Gas price drop???  Not sure about you, but I'm paying $4.81/gal here in Ontario.  $4.81, incase anyone thought that was a typo.

 

www.silvergoldsilver.blogspot.com

Fri, 07/15/2011 - 09:48 | 1459107 jdrose1985
jdrose1985's picture

Filled up @ 3.43 in Columbus Oh yesterday.

Fri, 07/15/2011 - 10:06 | 1459166 Djirk
Djirk's picture

oh shit people have more purchasing power....DEFLATION NOOOOO...quick pump some more money in the system

Fri, 07/15/2011 - 08:55 | 1458976 Johnny Lawrence
Johnny Lawrence's picture

Market doesn't care.  Dow futures still up 46.  And we'll probably have another month of all the regional manufacturing indicies posting negative numbers, and yet somehow the ISM will be positive.

Fri, 07/15/2011 - 08:55 | 1458978 101 years and c...
101 years and counting's picture

I'm guessing SnP near 1100 would be low enough for more money printing....oops, i mean the creation of more reserves for the banks.

Fri, 07/15/2011 - 09:01 | 1458994 SheepDog-One
SheepDog-One's picture

When? Well when I see that drop actually take place, I'll eat my straw hat.

Fri, 07/15/2011 - 08:58 | 1458981 SheepDog-One
SheepDog-One's picture

Looks like tar paper shanty time folks, while banks have so much extra billions in cash theyre having trouble finding places to store it. I guess they can use repo'd McMansions.

Fri, 07/15/2011 - 08:56 | 1458982 Paul Thomason
Paul Thomason's picture

this is bullish for stocks.

Fri, 07/15/2011 - 09:08 | 1459009 wandstrasse
wandstrasse's picture

financial market daddy says to Qe2-money-kid: you stay here with your parents and play with stocks and derivatives! You not go outside to real economy!

Fri, 07/15/2011 - 08:58 | 1458986 trampstamp
trampstamp's picture

I'm beginning to wonder if Transitory is even a word.

Fri, 07/15/2011 - 09:09 | 1459011 snowball777
snowball777's picture

It was, but isn't anymore.

Fri, 07/15/2011 - 09:16 | 1459029 idea_hamster
idea_hamster's picture

It describes the opposite of "normalcy."

Fri, 07/15/2011 - 09:36 | 1459069 HowardBeale
HowardBeale's picture

I do not think that word means what you think it means.

Fri, 07/15/2011 - 09:38 | 1459077 HowardBeale
HowardBeale's picture

I do not think that word means what you think it means.

Fri, 07/15/2011 - 08:59 | 1458990 Dick Darlington
Dick Darlington's picture

Economy continues to deteriorate and banks squeeze their reserves to prop up their results and manage to "beat" the groupthinking bus' expectations. And this is, of course, great news for the paper economy ie equities. Oh dear, this will end up in tears. Again.

Fri, 07/15/2011 - 09:03 | 1458999 slaughterer
slaughterer's picture

"We would venture to guess that in addition to S&P < 1,000, core CPI coming in negative is the other QE3 gating factor."

 

Negative CPI: cannot check it off yet.

S&P < 1,000: cannot check it off yet.

It is going to take a while till the pigmen get their next swill fill, especially if they are blowing out earnings on accounting tricks.

Fri, 07/15/2011 - 09:06 | 1459005 SheepDog-One
SheepDog-One's picture

Thats what Im talkin about Slaughterer, stocks jonesing bad for more free bags of rock from Bernank, whining about 'its getting real tough out here' but no one dares to let stocks drop even .05% as the crooks cook books and everything is better than expected.

So wheres any trouble, anywhere?

Fri, 07/15/2011 - 09:09 | 1459014 slaughterer
slaughterer's picture

New T-Shirt slogan for SD-1 and slaughterer:

"The continual pricing in of QE3 will make sure there will never be QE3."

 

 

Fri, 07/15/2011 - 09:19 | 1459038 SheepDog-One
SheepDog-One's picture

Markets have been pricing in QE3 for about 4 months now, while apparently theres sheer terror in ever letting indexes drop even 1%, I dont think they can pull it off. 'Continual daily pricing in of QE3 will make sure theres never a QE3'. Im just trying to figure out how many times QE3 has already been priced in since March.

Fri, 07/15/2011 - 09:34 | 1459058 John Law Lives
John Law Lives's picture

It makes you wonder why the need for so much money printing at the hint of recession.  What is so wrong with allowing a natural economic event to play itself out rather than make things worse through rampant money creation and rampant deficit spending.  Maybe the hundreds of trillion in derivatives held around the globe forced their hands...

Fri, 07/15/2011 - 09:05 | 1459004 qussl3
qussl3's picture

They cant break ranks, anyone showing weakness will probably be the sacrifical lamb.

Since there is no downside to BS accounting, why not?

Fri, 07/15/2011 - 09:13 | 1459025 slaughterer
slaughterer's picture

Goldman as "sacrificial lamb"?  Why not?  Then they they can take the Squid private. 

Fri, 07/15/2011 - 09:02 | 1458995 Arius
Arius's picture

I am not sure why, but my insticts tell me this is bullish ...

Fri, 07/15/2011 - 09:17 | 1459033 snowball777
snowball777's picture

I am sure my eyes tell me this bullshit stinks.

Fri, 07/15/2011 - 09:03 | 1459000 John Law Lives
John Law Lives's picture

<<<   This is not good for July NFP numbers after the already atrocious June employment data.   >>>

That's okay.  The good ole Birth/Death Model will make up for it... and Wall Street will still get its QE3... and record bonuses... as the middle class dissolves into vapor...

Fri, 07/15/2011 - 09:10 | 1459017 SheepDog-One
SheepDog-One's picture

Right, everything always comes in better than expected, while everyone whines we better get a giant QE bag of crack rocks for the market right now! I think their problem is they cant pull off a 'fear and panic' plunge, and then recover it with more blatant funny money which no one is believing in anymore.

Fri, 07/15/2011 - 09:18 | 1459034 John Law Lives
John Law Lives's picture

It's obvious the Fed doesn't know what else to do besides inject money into TBTF banks and hope the stock market goes up without dragging food and energy prices higher etc.  The only thing worse than a great fool is an arrogant elitist great fool (imo).

The Great Chairsatan = arrogant elitist great fool (imo)

Fri, 07/15/2011 - 09:05 | 1459001 ziggy59
ziggy59's picture

the  goldilocks economy...ever so just right numbers for the controlled demolition coming to a country near you.

Fri, 07/15/2011 - 09:12 | 1459024 SheepDog-One
SheepDog-One's picture

Thats it, I think theyre just buying days at a time now until the date the rug is pulled out, while everything is panic manipulated to Goldilocks 'just good enough', and calming the sheeple with this now 4 month old promise of 'dont worry, we got QE3 comin'....Im just not buyin into the crap this is insanity.

Fri, 07/15/2011 - 09:05 | 1459003 Dick Darlington
Dick Darlington's picture

OT: As Tyler has earlier written abt Spanish hidden debt issues, I just spotted an update on the situation in Castilla La Mancha. To put it simply: UGLY!

July 15 (Bloomberg) -- Spain’s Castilla-La Mancha first-
half budget deficit was close to 6 percent of its gross domestic
product, Expansion reported, citing unidentified people in the
regional government.
     The deficit amounts to almost 2 billion euros ($2.8
billion), Expansion said. The Spanish government set a maximum
deficit target of 1.3 percent GDP for the country’s regions for
this year, Expansion said.
     Castilla-La Mancha also has about 1.7 billion euros of
pending bills, compared with the 700 million euros that were
disclosed by the previous regional administration, Expansion
said.

Fri, 07/15/2011 - 09:15 | 1459028 bill1102inf
bill1102inf's picture

Heres my bet. They will raise the limit.&  There will be a downgrade.

Fri, 07/15/2011 - 09:18 | 1459035 slaughterer
slaughterer's picture

Good bet.  Then the USA can pay even more interest on even more debt.  An even more downward downward spiral.  Downward spiral squared. 

Fri, 07/15/2011 - 09:16 | 1459031 Cortez
Cortez's picture

The Great Depression was ultimately "transitory".

Fri, 07/15/2011 - 09:18 | 1459037 snowball777
snowball777's picture

Except for the loss of the gold standard. That stuck.

Fri, 07/15/2011 - 09:28 | 1459047 Cortez
Cortez's picture

True.  It led to an era of inflationary prosperity.  Now we are in a "Secret Depression".  Gov't and media deny, deny and cover up the true condition of the economy.  Corporations are screaming that it is regulations and DC politics preventing them from hiring.  The aren't hiring because the end demand isn't there with the average person making less money (whether in real terms or adjusted for commodity inflation).  Business wants less regs for one reason - it is the only way to improve profit margins at this point.  And they still won't hire if they get what they want. 

Fri, 07/15/2011 - 09:57 | 1459134 snowball777
snowball777's picture

I'm afraid that several tens of millions are onto them for some reason. Do the regulations make the insiders sell too?

Fri, 07/15/2011 - 09:23 | 1459042 SheepDog-One
SheepDog-One's picture

In truth, we never got out of the great depression either. The removal of backed money, and the start of the federal reserve started the bubble then that we're still on today.

Fri, 07/15/2011 - 09:24 | 1459043 rsnoble
rsnoble's picture

While sitting here I see my neighbor drive by with all  his mowing equipment.  Works for the gov't, calls in sick at least 1-2x every couple weeks, gets paid to not be at work and then gets paid to mow grass.  Bullshit.   My wife wanted to go back to school and got laid off, went to the wia (workforce investment office) to get a school voucher but they've been out of funding for months.  Since they have no funding, they have nothing to do except play on the internet all day plus they have no idea if/when they'll get more funding.  I know someone that gets paid around 80k to work in a gov't office that isn't open for business yet and has been there almost a year.  Absolutely nothing to do all day.  Money is no object for the gov't.  But when it comes time to pay the piper we're going to get slaughtered.

Fri, 07/15/2011 - 09:26 | 1459044 rsnoble
rsnoble's picture

And nothing was more refreshing than going to the local courthouse to dispute a $650.00 luxury tax bill(due yearly) on a damn fishing boat.  I was taken from the downstairs collection of 20 tax specialists to the upstairs where I seen another couple dozen or so paperpushers.  This group of assholes pisses me off the most, they refuse to join the depression and if you don't keep the money coming they'll just sell your ass on the courthouse steps.  I can't wait for these fucking dummies to take the hit.

Fri, 07/15/2011 - 10:19 | 1459211 SoNH80
SoNH80's picture

I'll take a wild guess, and narrow down your home state to one of these seven:

Ohio, Illinois, California, New Jersey, Maryland, Massachusetts, New York

Fri, 07/15/2011 - 09:35 | 1459064 Bansters-in-my-...
Bansters-in-my- feces's picture

So at the top of the story it says "flagged as junk".....

Four times....

Whats going on.?

I never junked the article,and I see no one else has.

Whats up ?

Fri, 07/15/2011 - 09:40 | 1459085 Bansters-in-my-...
Bansters-in-my- feces's picture

So at the top of the story it says "flagged as junk".....

Four times....

Whats going on.?

I never junked the article,and I see no one else has.

Whats up ?

Fri, 07/15/2011 - 09:50 | 1459116 White.Star.Line
White.Star.Line's picture

It is so easy to do creative-CPI-accounting......

Formula:

Irrelevant non-essential goods prices
MINUS
Anything that is rising too quickly (blame it on the season)
PLUS
Negatve adjustment from falling real estate
EQUALS
Whatever number you want to throw out there (make sure it is a neglible amount that won't be disputed)

Fri, 07/15/2011 - 09:53 | 1459123 Bansters-in-my-...
Bansters-in-my- feces's picture

Ps...

Thats NOT me double posting,,,

Is thast my friendly CIA again...???

Fri, 07/15/2011 - 10:44 | 1459286 the grateful un...
the grateful unemployed's picture

and how long will NatGas stay this low? the TIPS auction has been well attended, one yesterday, guessing 4 points premium to par, 1% on the 10yr, real negative return.

Fri, 07/15/2011 - 10:57 | 1459320 virgilcaine
virgilcaine's picture

"Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today." News Item

January 13, 1930

 

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