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Thread: Seasonally Adjusted CPI defies credibility - Empire Manufacturing Index turns red

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    Default Seasonally Adjusted CPI defies credibility - Empire Manufacturing Index turns red

    from


    (snip)"The X-12/13-ARIMA seasonal adjustments on today's data were not quite up to snuff as both the CPI, printing at 0.0% (or 1.4% Y/Y) on expectations of 0.2%, the biggest CPI miss since January and the Empire Manufacturing index, at -5.85 on expectations of a +7.00 print, posting the biggest miss in 14 months. Notably, the number of employees declined in August from 18.52 to 16.47, while margins got crushed as Priced Paid soared from 7.41 to 16.47 as Prices Received slide from 3.70 to 2.35. And so baffle with bullshit returns, as following several weeks of better than expected, if largely seasonally adjusted, the speculation that NEW QE may be coming back is here again. In other words, yesterdays scorching retail data was good, but today's horrible NY manufacturing miss is better. At least to the complete idiocy that the market, and its "discounting mechanism" have become. Sure enough both EURUSD and gold spike on the weak news as the ghost of Bernanke's printing press is back in the room. Finally, how CPI could be unchanged when crude alone posted a 20% increase in July, and gas prices are back to doing their vertical thing, will always remain a mystery.


    On CPI:

    The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in July on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.4 percent before seasonal adjustment.

    Major indexes posted small movements in July, with a 0.3 percent decline in the energy index offsetting 0.1 percent increases in the indexes for food and all items less food and energy. Within energy, declines in the indexes for electricity, natural gas, and fuel oil more than offset a small increase in the gasoline index. Within the food component, the food at home index was unchanged with major grocery store food group indexes mixed, while the food away from home index increased.

    The index for all items less food and energy rose 0.1 percent in July, ending a streak of four consecutive 0.2 percent increases. The shelter index rose 0.1 percent for the second month in a row. The indexes for medical care, tobacco, household furnishings and operations, and apparel also increased, while the indexes for airline fares, used cars and trucks, recreation, and new vehicles all declined.

    The 12-month change in the index for all items was 1.4 percent in July. This compares to 1.7 percent in June and is the smallest 12- month change since November 2010. The index for all items less food and energy rose 2.1 percent for the 12 months ending July, a slight decline from the 2.2 percent figure in June and its smallest increase since October 2011.


    From the Empire Fed:

    Business Conditions Deteriorate

    In August, the general business conditions index fell thirteen points to -5.9, slipping below zero for the first time since October of 2011—a sign that activity declined for New York manufacturers over the month. Twenty-two percent of respondents reported that conditions had improved, while 28 percent reported that conditions had worsened. The new orders index fell three points to -5.5, its second consecutive reading below zero, pointing to a small decline in orders. The shipments index fell six points to 4.1, and the unfilled orders index inched higher but remained negative at -10.6. The delivery time index fell six points to -7.1, indicating that delivery times were shorter, and the inventories index declined eight points to -8.3, suggesting a modest decline in inventory levels.

    Optimism Continues to Wane

    Indexes for the six-month outlook were generally lower than last month and indicated a continued decline in optimism about future conditions. The future general business activity index fell for a seventh consecutive month, dropping five points to 15.2. The future new orders index fell eleven points to 2.4, and the future shipments index declined seven points to 8.3. The future prices paid index fell to 31.8, its lowest level in more than a year, and the future prices received index inched down to 14.1. The index for expected number of employees fell to 3.5, suggesting that employment levels were expected to be only slightly higher in the months ahead, and the future average work week index was -8.2. The capital expenditures index fell seven points to 12.9, and the technology spending index fell thirteen points to 5.9."(snip)


    There are a couple of important take-aways from these latest announcements. The first relates to inflation. The latest CPI numbers again arguably understate the actual level of price inflation to the point of strained credibility. But there is also wholesale inflation, which businesses are experiencing in the form of greatly increased costs for all sorts of necessary components of their business - from rising utility bills to rising 'ingredient' prices to rising shipping costs. At the same time, those businesses are unable to increase the prices they charge for products / services because consumers can't afford / won't accept attempted price increases. This directly squeezes the profit margin of those businesses, which in turn translates into reduced employment growth, reduced business investment, as well as reduced return on investment to business owners and investors. This must be resolved soon via one means or another - either higher retail prices or by business failures.

    The second point relates to reduced business 'activity' levels, which are reflected in decreased employment growth, reduced new orders, dropping backlogs etc. This is arguably a 'spin-proof' measure of the true state of the US economy, and it has now turned negative for two consecutive months.
    Last edited by Melonie; 08-15-2012 at 07:26 AM.

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    Default Re: Seasonally Adjusted CPI defies credibility - Empire Manufacturing Index turns red

    ... and today's Philly Fed report echoes the earlier NY Fed report ... from


    (snip)" Even though in a centrally-planned world nobody cares about fundamental data anymore, and high frequency economics can't hold a candle to high frequency trading, today's Philly Fed was not good, missing expectations for the 5th month in a row, and printing in negative territory for the 4 month in a row, coming at -7.1 on expectations of -5.0, and down from -12.9. Sadly for the market, the data was not horrible enough to suggest that despite the seasonally adjusted economic data euphoria from earlier this wee, that the Chairsatan would surprise to the upside and preannounce MORE NEW QE in 2 weeks. The data, however, was quite realistic, in that unlike BLS data which lately only keeps track of part-time jobs, the Employment index in the Philly Fed printed at -8.6, the lowest since September 2009, and likely the most realistic indication of the jobs picture possible. And with prices paid soaring far over priced received, margins got crushed even more, as US companies continue to discover with every passing day."(snip)

    (snip)"Indicators Suggest Continued Weakness

    The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased 6 points, to a reading of ?7.1. This marks the fourth consecutive negative reading for the index but also its highest reading since May (see Chart 1). Nearly 30 percent of firms reported declines in activity this month, exceeding the 22 percent that reported increases. Indexes for new orders and shipments remained negative. The new orders index improved one point, while the shipments index fell 3 points.

    Labor market conditions at the reporting firms deteriorated slightly this month. The current employment index, at ?8.6, remainednear its reading in the previous month. The percent of firms reporting decreases in employment (15 percent) exceeded the percent reporting increases (7 percent). Firms also indicated fewer hours worked this month: The average workweek index increased 3 points but posted its fifth consecutive negative reading.

    Price Indexes for Output Near Steady Indexes for prices paid and prices received both increased from their readings in July. The prices paid index increased from 3.7 to 11.2. The percentage of firms reporting higher input prices was 26 percent; 19 percent reported higher prices last month. Fifteen percent of the firms reported declines in input prices. With respect to their own manufactured goods, however, firms reported nearsteady prices. While the percentage reporting an increase in product prices (13 percent) was slightly higher than the percentage reporting a decrease (10 percent), 73 percent reported steady prices. The prices received index edged up slightly, from to 1.6 to 2.8. (snip)


    The Philly Fed report particularly amplifies the problem of 'pent up' inflation in the form of US companies experiencing significant increases in 'input' costs, while remaining unable to float price increases for their products and/or services to offset those rising costs. The resulting reduction in profit margin WILL eventually wind up being resolved by one means or another ... either higher prices to consumers, or business failures leading to supply shortages leading to higher prices to consumers from the 'surviving' companies. However, in the shorter term, declining profit margins should directly translate into declining stock share prices absent another round of money printing by the US fed.
    Last edited by Melonie; 08-16-2012 at 07:49 AM.

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    Default Re: Seasonally Adjusted CPI defies credibility - Empire Manufacturing Index turns red

    You touch on the larger problem : The insanity of the Fed doing the same thing over and over again and expecting a different result. We had a Depression because the idiots at the Fed turned a recession into a depression by raising interest rates and reserve requirements and by failing to bail out the banks. The latter was supposed to be the primary job and function of the Fed when it was formed in 1913 and it failed miserably. I have watched and read liberal economists FINALLY recognize the real causes of the Depression some eighty ( 80 ! ) years later. All they had to do was read Milton Friedman 30 years ago. But I digress. We have already had two rounds of QE; some argue it is three. It hasn't worked. Why ? Because the banks haven't been lending it out. Instead they have lending it back to Uncle Sam. It is A reason why small businesses have not been forming at the same rates as they were under Reagan and Clinton. Employers have not been hiring , expanding and investing and there is little prospect that they will do so anytime soon. Despite numerous attempts at stimulus : Bush The Dumber's stimulus efforts , Obama's Porkulus, Dollars for Dishwashers, Cash for Clunkers, Cash for Caulkers plus all of Obama's Greenie efforts we still have feeble growth and high unemployment. Every effort to improve things by juicing demand has failed. Just as it did for Hoover and FDR until W.W. II came along.

    The bottom line is that the Fed is trying to cure fiscal and structural economic problems by treating it as a monetary problem when it is not. Bernanke is like a doctor who has misdiagnosed the patient's condition and insists on prescribing the same medication even though it is contraindicated. As Melonie and I have pointed out, he has actually made things worse.
    Last edited by Eric Stoner; 08-20-2012 at 07:03 AM.

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    Default Re: Seasonally Adjusted CPI defies credibility - Empire Manufacturing Index turns red

    ^^^ Actually, I'll come right out and bluntly state the actual meaning of your fiscal and structural economic problems ...

    - there is an unsustainably high level of US gov't debt, which continues to increase. This debt 'crowds out' potential investment in productive, entrepreneurial business activities, in favor of funding current gov't spending on social welfare benefits, on 'zombie' company subsidies, on gov't workers of questionable productivity, etc.

    - there is a large and growing 'permanent underclass' of unskilled US workers who will never again be 'needed' given the composition of America's present and probable future economy. This 'permanent underclass' of unskilled US workers consume more than they produce, creating an increasing 'drain' on the productive US economic segments. And with very limited exceptions ( for highly skilled US workers in high demand specialties ), this general surplus of labor dictates that pay rates / income levels will not be increased.

    - Fed money printing has already triggered significant 'undisguisable' price increases in global commodities such as food, energy, raw materials etc. which 'crowds out' consumer spending on less essential budget items. Fed money printing has also triggered significant 'disguised' price inflation potential via squeezing profit margins of US businesses trapped between rising 'input' costs and the inability to pass on price increases to US consumers to offset those rising 'input' costs. Unless the gov't deems them worthy of 'zombie' company taxpayer subsidies, unprofitable businesses do not expand and do not hire additional workers ( instead they eventually close and lay off existing workers ).

    Arguably, both the Empire and Philly Fed reports clearly illustrate all three of the above points ... declining business investment, declining employment, profit margins being 'squeezed', etc.
    Last edited by Melonie; 08-16-2012 at 12:39 PM.

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    Default Re: Seasonally Adjusted CPI defies credibility - Empire Manufacturing Index turns red

    Your second point is actually the saddest. There are numerous reasons for it but a prime one is oversupply of labor. The prime reason for that is illegal immigration. Who does a lot of the unskilled and low skilled labor in this country ? Illegal immigrants.

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    Default Re: Seasonally Adjusted CPI defies credibility - Empire Manufacturing Index turns red

    The latest poll of 17 Wall Street primary dealers ( who do business with the Fed every day ) and 44 leading economists shows 60 % of them believe "Uncle Ben Bernanke" will launch a third round of QE BEFORE November 6. Romney has clearly stated that he will NOT reappoint Bernanke. Hmmmm. Could there be a connection ? We'll find out on August 31.

    This is despite an overwhelming consensus that more QE is the LAST thing the economy needs.

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    Default Re: Seasonally Adjusted CPI defies credibility - Empire Manufacturing Index turns red

    ^^^ the September 12th ??? Woods Hole FED meeting is the date I'll throw out there for a QE3 announcement. And where Bernanke is concerned, I'll again risk being painfully blunt. What percentage of registered voters would respond positively to a major uptick in US stock indexes thus the value of their 401k's just prior to the upcoming election as the result of QE3 money printing ? What percentage of those same registered voters will 'connect the dots' that next year's $5 a gallon gasoline prices, $3 loaf of bread prices etc. are a direct ( albeit time delayed ) result of the same QE3 money printing ?


    Who does a lot of the unskilled and low skilled labor in this country ?
    Partially true. The flip side is that, with the stigma of being caught employing illegal workers rising, many US businesses have made / are making major capital investments to eliminate the need for as much unskilled labor as possible. This is why you see automated warehouse material handling systems, automated agricultural harvesting equipment, etc. rapidly replacing unskilled workers. Also, check any WalMart in a high minimum wage state and you'll already see that 1/2 of the checkout clerks have already been replaced by self-checkout equipment. Similarly, check convenience marts in any high minimum wage state ... where several former small marts have closed their doors, to be replaced by a single huge mart with 2 dozen self-service gas pumps plus one minimum wage worker behind the bullet-proof counter glass !!! At least one hotel chain is already experimenting with 'commercial' RoomBa robotic vacuum cleaners.

    Basically the underlying point is the same in either case ... that US employers simply can't afford to pay $8.00 per hour in direct labor costs, plus employer SSI taxes, plus unemployment and disability insurance premiums, plus upcoming ObamaCare tax penalties, and come anywhere near 'breaking even' based on the 'added value' actually created by that unskilled worker. Employers of illegals get around this by paying $5 an hour plus zero SSI taxes, zero insurance premiums, and soon zero ObamaCare tax penalties. Employers making capital investments get around this by permanently eliminating unskilled workers and allocating their former labor cost toward low interest rate loan payments to pay for that capital investment. And, arguably, the capital investment response is worse than the illegal labor response because, once installed, the capital equipment permanently eliminates a US unskilled worker's job - along with eliminating any local economy spending / tax revenues resulting from that US unskilled worker's paycheck. Instead, the beneficiaries are Wall St banks who collect loan interest, and foreign automated machinery builders who collect the sale price of the equipment.
    Last edited by Melonie; 08-20-2012 at 08:32 AM.

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    Default Re: Seasonally Adjusted CPI defies credibility - Empire Manufacturing Index turns red

    I don't know how far off the self-mowing lawn is ; or the self detailing car. Then there is construction, food service and manufacturing. Only the latter can be automated to the extent that it completely or almost completely removes the human element. A lot of employers cannot afford the capital outlay necessary to obtain some of the cutting edge stuff you listed.

    Fortunately or unfortunately depending on your pov, a LOT of jobs held by illegals pay a lot better than the minimum wage. Illegals do get screwed on benefits, work rules and workplace safety but in a lot of cases their wages are fair to good.
    Last edited by Eric Stoner; 08-21-2012 at 06:57 AM.

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    Default Re: Seasonally Adjusted CPI defies credibility - Empire Manufacturing Index turns red

    ^^^ no argument ^^^ Nonetheless, targeted capital investment is permanently eliminating minimum wage jobs in a whole lot of areas where it is 'practical' to do so. And also, those US employers who cannot afford to eliminate minimum wage jobs via capital investment often eliminate minimum wage jobs via business bankruptcy !

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