May PPI Comes In At 0.2%, Higher Than Expected 0.1%, Eleventh Consecutive Increase; Retail Sales Slightly Better Than Expected

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US May PPI came in at 0.2% sequentially, on expectations of 0.1%, and down from 0.8% previously. This was the 11th consecutive increase in PPI. The 12 month change in PPI came at a multi year high 7.3%, much higher than the 6.8% expected, which supposedly is a good thing: inflation is back. PPI ex food and energy was in ling with expectations at 2.1%. Elsewhere, the May Advance Monthly Sales came at -0.2%, on expectations of -0.5%, down from a lower revised 0.3%. Retail sales ex auto and gas came at 0.3% on expectations of 0.2%, with the previous revised lower to 0.2% from 0.3%. Stocks appear to enjoy the increasing inflation on declining economic output.

From the PPI Data:

Looking at the various stages of production we see the following: "The May advance in the finished goods index can be traced primarily to prices for finished energy goods, which rose 1.5 percent. The index for finished goods less foods and energy moved up 0.2 percent. By contrast, prices for finished consumer foods fell 1.4 percent in May...The Producer Price Index for intermediate materials, supplies, and components moved up 0.9 percent in May, the tenth consecutive monthly increase. About two-thirds of the May rise can be traced to a 0.9-percent advance in prices for intermediate goods other than foods and energy. A 1.4-percent jump in the index for intermediate energy goods also contributed to the increase in intermediate goods prices."

Crude goods dropped by 4.1%, primarily on the back of energy: "The index for crude energy materials declined 5.2 percent in May. From February to May, prices for crude energy materials fell 1.2 percent subsequent to a 17.0-percent increase for the 3 months ending in February. The monthly decrease was the result of a 10.9-percent drop in crude petroleum prices. The index for crude foodstuffs and feedstuffs decreased 4.4 percent in May. From February to May, prices for crude foodstuffs and feedstuffs edged down 0.3 percent following a 12.2-percent rise in the previous 3-month period. Over thirty percent of the monthly decline in prices forcrude foodstuffs and feedstuffs can be traced to a 5.8-percent decrease in the index for slaughter steers and heifers. The index for crude nonfood materials less energy moved down 0.9 percent in May. For the 3-month period ending in May, crude core prices decreased 0.7 percent after advancing 10.0 percent from November to February. A major contributor to the monthly decline was the index for copper base scrap, which fell 4.7 percent.

As for retail sales, it was all about auto sales, which tumbled 2.9%. The ball is now and for the next quarter in Japan's court. Unless production picks up and unless GM actually makes a car people want to buy, this number will not be pretty for a while.

And Goldman's full take:

MAIN POINTS:

1. Retail sales declined by 0.2% (mom) in May, a smaller drop than expected. Motor vehicle and parts sales declined, consistent with disappointing unit vehicle sales for the month. This component subtracted 0.5 percentage points from the month-over-month change. Weakness in auto-related components was partially offset by strength elsewhere. Core retail sales-excluding autos, gas and building materials-rose by 0.2% (mom), and the result for April was revised up slightly. Spending increased for health and personal care products stores, clothing stores, and non-store retailers. Overall the report suggests a possible stabilization after a long period of weaker-than-expected US activity data.

2. Headline producer prices increased by two tenths in May, down from 0.8% in April. The increase is mainly driven by lower food prices (-1.4%) while energy prices continue to rise (+1.5%). Core finished producer prices rose in line with expectations, up 0.2% on the month. At the intermediate stage of processing, the core index rose 0.9%, down from 1.1% in April.

3. This morning's data had minor implications for our assessment of real activity. Our Current Activity Indicator (CAI) for May moved up slightly, to 1.2% from 1.1% before the retail sales report. We continue to see downside risk to our 3% forecast for Q2 GDP growth, but these data did not affect our GDP tracking estimates.