INFLATION WATCH
U.S. Consumer Prices Up 0.3% U.S. consumer prices advanced in April at their strongest rate in nearly a year, a sign of modestly increasing inflation pressures in the economy.
So-called core prices, which strip out volatile food and energy costs, rose 0.2% last month. April prices were up 2.0% from a year earlier compared with the 1.5% annual advance in March.
April’s price gains were largely driven by increased costs for staples such as gasoline, food and shelter.
Seasonally adjusted gasoline prices rose 2.3% in April, the largest monthly jump since December. Still, gasoline prices are up just 2.4% from a year earlier.
Food prices rose 0.4% last month, the fourth straight increase. Meat prices posted their largest gain since 2003 and fruits and vegetables also cost more.
Shelter prices, which account for almost a third of the total index, rose 0.2% last month.
Electricity costs fell 2.6% in April, the biggest one-month drop since 1986. Much of the decline can be attributed to “climate credits applied to utility bills in California,” the Labor Department said.
Medical care prices rose 0.3% last month and are up 2.4% from a year earlier. Last year, medical inflation fell behind the pace of overall gains. However, that trend has reversed in recent months, coinciding with some 8 million Americans signing up for insurance coverage made available under the new health-care law.
The Fed wants 2.0% inflation and it just got it. Total CPI rose at a 3.0% annualized rate in March and April and is now up 2.0% Y/Y. Core CPI rose at a 2.4% annualized rate in the last 2 months and is up 1.8% Y/Y.
Services less energy services, (e.g. shelter, transportation services and Medical care) have been in a sharp acceleration since December, rising at a 4.1% annualized rate to +2.6% Y/Y. (Chart above from Doug Short, below from BloombergBriefs)
BloombergBriefs this a.m. posts these two charts illustrating diverging trends in consumer spending:
The BB economist then asserts that
Outlays on housing and utilities are up 4.6 percent, health-care 6 percent, transportation 9.9 percent and recreational services 2 percent. Demand for transportation and recreational services indicate a growing confidence among households in prospects for disposable income growth.
Maybe, after seeing today’s CPI breakdown, he will re-examine the notion that the increase in services spending indicate any kind of growing confidence in anything. Rather, it results from sharply rising inflation in these non-discretionary categories of expenditures.
Today’s CPI was for April. Here’s what’s in the pipeline for coming months:
U.S. Producer Prices Rise 0.6% in April
The producer-price index for final demand, which measures charges for everything from gasoline to accounting services, rose a seasonally adjusted 0.6% in April from a month earlier, the Labor Department said Wednesday. That marked the biggest jump since September 2012. Prices rose 0.5% in March.
April’s rise was more than double what economists surveyed by The Wall Street Journal had forecast and reflected price increases for a broad range of goods and services, from warehousing to meat prices. Excluding the volatile food and energy components, prices climbed 0.5%.
Over the past year, overall producer prices were up 2.1% in April, marking the biggest year-over-year rise in two years. (…)
Within the report, a measure called “personal consumption” is a close equivalent to the government’s consumer-price index. In April, the personal consumption measure climbed 0.7% from a month earlier and 2.4% from a year earlier.
Last month’s rise in producer prices reflected higher charges for a broad range of goods and services. The 0.6% rise in services prices was driven by a big increases in higher margins received by wholesalers and retailers. That measure tracks the difference between the firm’s costs to produce service and to sell it. The rise could signal firms are tamping down costs, raising prices in the face of higher demand, or both. (…)
Here’s the BLS table: core PPI has risen at a 3.1% annualized rate since December. Note how “Final Demand Services” has accelerated in March and April (+8.0% a.r.), likley reflecting rising wages in the Services sector.
Job market debate rages at Fed, likely keeping rates on hold Economists within the Federal Reserve are struggling to size up the strength of the U.S. labor market but can’t even agree what yardstick to use.
Meanwhile, in the real world:
Actually, we are at cyclical lows as this chart from Doug Short clearly shows:
Old Dominion Freight Line Inc. and Knight Transportation Inc. are ordering hundreds of vehicles to keep up with freight demand. They’re part of an industrywide push that’s propelling sales of big rigs to an eight-year high, buoying trucking stocks and raising pay for drivers, who are in short supply.
“Freight is up, availability of trucking assets is tight,” said Sandy Cutler, chief executive officer of Eaton Corp., whose products include truck transmissions. Truckers “are feeling more comfortable ordering increased assets.”
Rising cargo rates are giving truckers confidence to expand fleets and replace tractors averaging a near-record age of 9.6 years. (…)
Even with winter storms disrupting highway travel, first-quarter truckload shipping volumes rose 4.9 percent and rates climbed 1.2 percent, according to consultant FTR Associates. North American truckers placed net orders for 90,289 large trucks in the three months ended in March, 35 percent more than a year earlier and the fastest such pace since early 2006. (…)
Eaton raised its 2014 forecast for North American truck output by 5.7 percent to 280,000 units. That was among the highest annual totals projected by seven truck and equipment manufacturers, based on data compiled by Bloomberg. Their average prediction is for an 11 percent gain over 2013. (…)
Tight capacity hadn’t spurred more truck sales because companies are struggling to find people to drive them, FTR’s Starks said. The company estimated the driver shortage at 236,000 in the first quarter, 43 percent more than a year earlier and the largest shortfall in a decade.
Covenant Transport Group Inc., a long-haul trucking company based in Chattanooga, Tennessee, is looking to expand its fleet this year. That means charging more for freight and using most of those profits to attract drivers with higher wages, CEO David Parker said on an April 30 conference call.
“End of the day, our drivers need to be making a whole lot more money,” he said.
Rate increases may push more long-haul cargo to railroads, which can carry double-stacked containers at lower prices than trucks. The tradeoff for rail shipments: slower speeds and, this year, a traffic jam on U.S. tracks because of harsh winter weather, a larger harvest and rising crude-by-rail volumes.
“The ability to put more stuff onto the railroads has been completely constrained,” Starks said. “We know shippers have actually taken some freight off the railroads because they can’t get their stuff there in a timely fashion.”
Meanwhile, in the twilight zone:
30Y Yield Tumbles To Fresh 11-Month Lows As Europe’s Bond Bonanza Breaks
Nervous Investors Pile Into Bonds Global bond rates dropped to their lowest levels of the year, as central bankers signaled their determination to jolt the world’s largest economies out of their malaise.
Investors piled into U.S., German and British government bonds—used to price everything from mortgages to car loans—driving down their yields. The yield on the 10-year U.S. Treasury dropped to as low as 2.523%, its lowest level in more than six months. In Germany, 10-year bund yields fell to their lowest point in a year.
Euro-Zone Economy Shows Weak Expansion The euro zone’s economy expanded at a surprisingly weak pace last quarter despite a strong recovery in Germany, as other key countries in the region stalled or contracted.
Gross domestic product grew 0.2% in the euro zone during the first quarter compared with the final three months of 2013, the European Union’s statistics agency Eurostat said Thursday, well short of the 0.4% quarterly gain expected by economists.
Last quarter’s rise translates into growth of 0.8% in annualized terms, little changed from the fourth quarter. That masked a deepening divergence among the 18-member euro zone. Of the 13 euro members reporting GDP Thursday, only six expanded and some of those were small economies such as Latvia, Slovakia and Belgium.
Germany’s statistics agency Thursday said that in the three months to March, gross domestic product was 0.8% up on the last three months of 2013. That was the most rapid expansion since the first quarter of 2011, and double the rate of growth recorded in the final quarter of last year.
De Statis said domestic consumption was the main driver of growth, and particularly spending by households and the government. Foreign trade put a damper on growth, and preliminary calculations show exports fell while imports picked up.
In the first three months of 2014, the euro zone’s second-largest economy failed to grow on a quarter-on-quarter basis, data from the French national statistics bureau, Insee showed. The French economy had grown 0.2% in the final quarter of last year and economists polled by The Wall Street Journal expected a slightly smaller slowdown to 0.1% growth in the first quarter.
Economists had expected Italy’s economy to grow by 0.2%, an acceleration from the 0.1% expansion recorded in the previous quarter, Instead, it contracted by 0.1%.
The GDP figures from Insee on Thursday indicate that Mr. Hollande’s policies still haven’t had an impact as investment by nonfinancial companies fell 0.5% in the first quarter from the previous quarter.
Consumer spending, which has steadied the French economy during the euro zone slump, also fell 0.5% over the same period, indicating rising unemployment and sales tax increases are weighing on households.
Elsewhere in Europe, growth was mixed in the first three months of the year. Within the euro zone, Austria slowed, with its economy expanding by 0.3% compared with a 0.4% rate of growth in the fourth quarter of last year. (…) (Chart from FT)
French Policies Impede Investment, Says CEO of Engineering Firm Higher taxes, complex labor laws and a string of policy U-turns during French President François Hollande’s first two years in office mean there is too much risk to invest, said the CEO of engineering company Ervor.
Japan’s GDP Growth Picks Up Japan’s economy regained momentum in the first quarter of this year, despite sluggish growth in the global economy, as domestic demand fired on all cylinders before a major consumption tax rise and employment improved.
Gross domestic product, the broadest measure of goods and services in the economy, grew at a seasonally adjusted annual rate of 5.9% in the first quarter, the Cabinet Office said Thursday.
A rush in purchasing ahead of the April 1 sales tax increase to tackle the nation’s fiscal woes–the first major tax raise in 17 years–fueled the growth of personal consumption expenditures. That in turn prompted businesses to increase production and capital spending, creating jobs and increasing overtime pay.
Private consumption, up an annualized 8.5%, was so strong it helped the economy shrug off the effects of stalling growth in the U.S., Japan’s No. 1 export destination, during the quarter.
But the front-loading of personal consumption in the first quarter has prepared the ground for a pullback in the second. Retail sales for April and early May have already showed a slowdown in personal consumption, especially in consumer durables such as autos, refrigerators and TVs. Yet some retailers say the declines weren’t as bad as expected.
OIL
Andrey Kryuchenkov of VTB Capital said that the price of Brent for delivery in June is at a high premium to that in the next available month — a condition known as backwardation and which indicates a well-supplied market.
Yet:
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OPEC May Struggle to Meet Demand The Organization of the Petroleum Exporting Countries may struggle to catch up with rising oil demand, an energy watchdog said as it upgraded consumption forecasts.
In its monthly oil market report, the International Energy Agency—which advises industrialized nations on energy matters—said that “while OPEC has more than enough capacity to deliver, it remains to be seen whether it will manage to overcome the above‐ground hurdles that have plagued some of its member countries lately.”
Outages in countries like Libya and Nigeria and sanctions on Iran have kept the output of the OPEC below its target of 30 million barrels a day in recent months.
After hitting five-month lows in March, OPEC crude oil production rebounded by 405,000 barrels a day to 29.90 million barrels a day in April due to higher Iraqi and Saudi production, the agency said. But that is still much lower than its estimated demand for the group’s oil, which was raised by 140,000 barrels a day to 30.7 million barrels a day for the second half of this year. The OPEC demand forecast also includes changes in stocks.
The IEA also upgraded its forecast of global oil demand for 2014 by 65,000 barrels a day due to stronger consumption in the U.S. and upward revisions in Japan, Germany and the U.K. The agency now expects global oil demand to average 92.8 million barrels a day this year.
Iran’s oil exports fell in March having reached a 20-month peak two months earlier, a global energy watchdog said on Thursday, potentially easing concerns that Tehran could breach a six-month cap agreed with the West in a broader deal over its nuclear program.
In its monthly market report, the International Energy Agency said that “estimated April import volumes [by foreign buyers of Iranian oil] were down by about 180,000 barrels a day to 1.11 million barrels a day.”
The export numbers, which include condensates, compared with 1.29 million barrels a day in March and a 20-month peak of 1.58 million barrels a day in February, it said. Condensates exports stood at around 230,000 barrels a day in April compared with 150,000 barrels a day in March, the agency said.
The IEA’s data confirmed statements by Iran’s deputy oil minister for international affairs Ali Majedi made to The Wall Street Journal last week that crude exports—which exclude condensates—averaged 1.2 million barrels a day in the past three months. That number—which excludes condensates—suggested a reduction from February levels of 1.3 million barrels a day.
In November, Iran agreed to cap its crude exports—excluding condensates—to 1 million barrels a day on a six-month average. The commitment is part of a broader interim deal with six world powers over its nuclear program.
Some countries such as India have reduced their intake of oil from Iran as they seek to adjust to U.S. sanctions limiting their imports of Iranian oil.
On an average basis, Iran’s oil exports, however, have been higher this year. Iran’s Oil Minister Bijan Zanganeh said earlier Thursday that oil exports amounted to 1.5 million barrels a day on average. That contrasts with a low of about 700,000 barrels a day in October, according to IEA estimates.
END OF EARNINGS SEASON
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Wal-Mart Offers Weak Outlook Wal-Mart offered a weak earnings forecast for the current quarter and posted another drop in U.S. sales in the latest period, its fifth consecutive quarterly decline.
Bentonville, Ark.-based Wal-Mart pointed to investments in e-commerce, headwinds from higher health-care costs in the U.S. and increased investments in Sam’s Club membership programs for the potential drop in profit, echoing its previous warnings.
Traffic at U.S. stores dropped 1.4% in the latest period, the sixth consecutive decline. Meanwhile, sales at Wal-Mart locations in the U.S., excluding newly opened or closed stores, fell 0.1% though the company said a solid start to spring and a strong Easter drove sales in the second half of the quarter.
Wal-Mart posted a profit of $3.59 billion, or $1.11 a share, down from $3.78 billion, or $1.14 a share, a year earlier. Earnings from continuing operations came in at $1.10 a share, hit by three cents a share by severe winter weather.
The company in February projected earnings of $1.10 to $1.20 a share, a range that fell below consensus views at the time.
For the current quarter, Wal-Mart said it expects earnings of $1.15 to $1.25 a share, below analysts’ expectations of $1.28 and compared with $1.24 a year earlier. Sales at its namesake U.S. locations are expected to be relatively flat.
Kohl’s Corp. KSS -3.33% said fiscal first-quarter earnings fell 15%, as the retailer recorded lower sales, though margins improved slightly. Same-store sales fell 3.4%, missing analysts’ expectations for 0.2% growth.
Obama to Speed Infrastructure Permits President Barack Obama on Wednesday announced plans to speed up permits for building roads, bridges and other infrastructure.
Nope, this is not a headline from 2009…
Non-auto ex gasoline and Building supplies: unchanged M/M in April following +1.0% and +0.4% in previous two months. 
On Tuesday, Mel Watt, the newly installed overseer of 
There is probably more at play than just squeamishness over equities. 
