Interest Rate Roundup

Thursday, May 15, 2008

The dilemma continues: Growth weak, inflation elevated

The latest economic data and market action continues to underscore the stagflation-lite environment we're in ...

For starters, today's figures were disappointing on the growth front. The May Empire Manufacturing index came in at -3.2. That compares to an April reading of 0.6 and expectations for a reading of 0. Meanwhile, industry production was down 0.7% in April. That compared with a March reading of +0.2% and expectations for a -0.3% figure.

Capacity utilization also dipped to 79.7% from 80.4%. That's the lowest reading since September 2005 and below expectations for a reading of 80.1%. Lastly, initial jobless claims rose to 371,000 in the most recent week from 365,000 in the week before. Continuing claims climbed to 3.06 million, the highest since March 2004.

At the same time, respondents to the Empire State survey said inflationary pressures are rising. Their input costs rose 8.7% in the past year, on average, while their selling prices rose by roughly 3%. In other words, rising costs aren't being completely passed through. But companies are clearly finding ways to charge more, raising inflation risk. And in early trading, crude oil is up by another $1.80 to just over $126 a barrel.

UPDATE: The Philadelphia Fed index came in at -15.6 in May vs. -24.9 in April and expectations for a reading of -19. Combing through the details, the new orders index improved to -3.7 from -18.8 and the employment index climbed to -1 from -11.1. Meanwhile, the prices paid index rose to 53.8 from 51.6 and the prices received index climbed to 31.6 from 30.9. The saga continues: Growth weak, inflation pressures elevated.


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