The empire state manufacturing index showed a bigger than expected improvement in May. The headline index rose from -14.65 to -4.55, while the consensus was looking for a figure of -12.00. The breakdown shows however a less uniformly positive figure. Shipments jumped back in positive territory (1.29 from -1.79), for the first time in 10 months. Improvements were also visible in inventories (-21.59 from - 35.96), unfilled orders (-10.23 from -17.98), number of employees (-23.86 from - 28.09) and average workweek (-22.73 from -28.09). New orders (-9.01 from -3.88) and delivery time (-13.64 from -5.62) on the contrary, deteriorated. The NY Fed is now at its highest level since August last year and coming closer to positive territory.
US industrial production came out close to expectations in April, dropping by 0.5% M/M, while the consensus was looking for a decline by 0.6% M/M. The previous figure was downwardly revised from -1.5% M/M to -1.7% M/M. The decline was led by a 3.2% M/M drop in mining and a 0.3% M/M fall in manufacturing, while utilities rose by 0.4% M/M. Studying the manufacturing sector, motor vehicles and parts rose by 1.4% M/M, while ex motor vehicles and parts dropped by 0.4% M/M. The easing of the fall in manufacturing output and the improvement in the NY Fed output hint that the violent correction may be drawing to a close.
In May, university of Michigan consumer confidence improved further from 65.1 to 67.9, slightly above the consensus estimate of 67.0. The economic outlook rose from 63.1 to 69.0, while the economic conditions slipped somewhat (66.2 from 68.3).
On a monthly basis, CPI stayed flat in April, in line with the consensus estimate and the yearly figure dropped from -0.4 Y/Y to -0.7% Y/Y. Core CPI, excluding food and energy, rose a strong 0.3% M/M, showed a slight uptick to1.9% Y/Y from 1.8% Y/Y in April. Looking at the details, energy dropped by 2.4% M/M, but also food and beverages (-0.2% M/M), apparel (-0.2% M/M), recreation (-0.4% M/M) and commodities (- 0.1% M/M) declined, while medical care (0.4% M/M), education (0.3% M/M) and other goods, services (2.6% M/M) showed positive contributions. The sustained strong readings in the core CPI, admittedly this month due in part to higher taxes on cigarettes, not only in US but also in EMU and UK, suggest that fears of deflation may be overdone, at least for now. In the coming months, both headline and core CPI are forecasted to decline further.
EMU: euro zone GDP contracts by 2.5% Q/Q
In the euro zone, first quarter GDP contracted by 2.5% Q/Q, the fourth consecutive quarter of negative growth. This outcome was disappointing as the consensus was looking for a figure of -2.0% Q/Q. On a yearly basis, GDP is down by 4.6% Y/Y in the euro zone. The weaker than expected outcome was at least partially due to a downward surprise in German GDP (-3.9% Q/Q). Although the details are not yet available, the German statistics office added that lower investment and a drop in net exports depressed economic activity. The GDP data show that the EMU area is surprisingly harder hit than both the US and the UK, who both were seen as hit harder in the financial sector. The awful GDP figures in East Europe, notably the Baltics, but also Slovakia and Ireland, show that Europe has some particular problems in its peripheral member states.
In April, the final figure of euro zone CPI confirmed the flash estimate of 0.6% Y/Y. More surprising was the increase in core CPI from a revised 1.4% Y/Y to 1.8% Y/Y. Looking at the details, negative contributions came only from housing (-0.5% M/M) and food (-0.1% M/M), while clothing (2.8% M/M), transport (1.0% M/M) and hotels, restaurants (0.6% M/M) showed the biggest positive contributions, which might be partially related to Easter. In the coming months, inflation is expected to decline further, but the deflation fears in the previous months, might have been exaggerated a bit.
