Tuesday, May 17, 2016

Lower markets on mixed economic data

Dow lost 37, advancers over decliners 5-4 & NAZ gave up 11.  The MLP index added 1+ to the 301s & the REIT index fell 4+ to the 442s.  Junk bond funds were a little lower & Treasuries had a modest advance.  Oil climbed again & gold was also higher.

AMJ (Alerian MLP Index tracking fund)

CLM16.NYM...Crude Oil Jun 16...48.02 Up ...0.30 (0.6%)

GCK16.CMX...Gold May 16....1,271.10 Down ...2.30  (0.2%)

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The cost of living in the US climbed in Apr by the most in 3 years an indication that inflation may be picking up toward the Fed's goal.  Consumer prices increased 0.4%, the biggest gain since Feb 2013, following a 0.1% advance in Mar, according to the Labor Dept.  The core measure, which strips out food & energy costs, rose 0.2% after a 0.1% gain the prior month.

The biggest jump in gasoline prices in almost 4 years is leading a rebound in fuel costs that is laying the groundwork for overall inflation to climb higher, while a slight weakening in the $ will support a pickup in core prices to a level near the Fed's 2% target.  A strengthening job market is also helping boost pay, which may prompt companies to raise prices to prevent profits from weakening.  The CPI climbed 1.1% in the 12 months ended Apr after rising 0.9% in the previous period.  The increase in core prices matched the estimate.  At a year-over-year rate, core prices rose 2.1% after climbing 2.2% the prior month.  The report showed energy costs increased 3.4%, the most since Feb 2013, & gasoline jumped 8.1%, the most since Aug 2012.  Food prices increased 0.2% in Apr after a 0.2% decline the month before.  The core index was boosted by increases in rents, medical care, auto insurance & airline fares.  Declines in costs of household furnishings, clothing and new & used cars held back the gain.

Consumer Prices Rise by Most Since 2013

US manufacturing production rose in Apr for the first time in 3 months, indicating a respite for the industry after a one-year slump.  Factory output, which makes up 75% of production, climbed 0.3%, erasing the prior month’s decline.  Total industrial production, including mines & utilities, advanced 0.7%, the most since Nov 2014.  Output at utilities jumped 5.8%, the biggest gain in more than 9 years, as demand for electricity & natural gas returned to normal after a warm Mar

The worst of America’s manufacturing slump is probably over, although the industry may do little to add to economic growth.  A decline in the $ this year will help provide some relief going forward for export-oriented factories.  Remaining hurdles includes still-soft overseas markets & US business efforts to bring inventories more in line with a recent weakening in sales.  Factory output minus motor vehicle production rose a more modest 0.2%.  Mining production decreased 2.3%, reflecting substantial cutbacks in crude oil and gas extraction as well as coal mining.  Output at oil fields & mines has declined in 14 of the last 16 months.  Manufacturing capacity utilization, which measures the amount of a factory that is in use, crept up to 75.3% from 75.1%.

Factory Output in U.S. Increases for First Time in Three Months

New-home construction rose in Apr, extending a pattern of gains & losses that signals the US homebuilding industry is contributing little to economic growth.  Residential starts increased 6.6% to a 1.17M annualized rate from 1.1M in Mar, according to the Commerce Dept.  The forecast projected an increase to a 1.13M rate.  Permits, a proxy for future construction, also climbed.

The rebound in construction from the prior month’s slump keeps housing on a stable if uninspiring path as the economy tries to move past disappointing Q1 growth.  While wages have been slow to pick up, prospects for further improvement in employment could sustain orders for new homes.  The starts data, while very volatile from month to month, have held in a narrow range over the past year, indicating residential real estate will have trouble adding to its post-recession rebound.  Permits rose 3.6% to a 1.12M annualized rate, indicating little scope for further gains in starts from 1.08M in Mar.  Construction of single-family houses climbed 3.3% to a 778K rate from 753K in Mar.  Groundbreaking on multifamily homes increased 13.9% to an annual rate of 394K, the most this year.

Housing Starts in U.S. Increase, Extending See-Saw Pattern

There is a lot of nothing today in the stock market.  Markets did not climb higher with unexciting news stories.  Dow continues to look at 18K as a ceiling it has been unable to crack in a meaningful way for weeks. 

Dow Jones Industrials

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