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Economy in Brief

Gasoline Fueled Strong CPI Gain
by Tom Moeller June 15, 2004

The Consumer Price Index (CPI-U) rose 0.6% in May versus Consensus expectations for a 0.4% gain. The gain was fueled by an 8.1% jump in gasoline prices which were up nearly a third from last year and were nearly double the low level of early 1999.

So far in June retail gasoline prices have fallen 3.8% from the May peak to $1.99 per gallon.

Core consumer prices logged a tame 0.2% increase that matched Consensus expectations.

Prices of core consumer goods rose a modest 0.1% despite a 0.3% (0.7% y/y) increase in apparel prices. Motor vehicle prices were unchanged (-3.6% y/y) for the second consecutive month but prices for home furnishings & operation rose 0.2% (-0.7% y/y). Medical care commodities prices rose 0.2% (2.8% y/y).

Core service prices rose a moderate 0.2%, the gain held back by a 1.3% (-0.4% y/y) decline in public transportation prices. Shelter costs rose a moderate 0.2% (2.7% y/y). Medical care services prices rose the same 0.3% (5.2% y/y) as in April.

The chained CPI which adjusts for shifts in consumer buying behavior rose 0.4%. It is similar to the PCE price deflator. The core chain price measure fell 0.1%, the first monthly decline since December.

Consumer Price Index May April Y/Y 2003 2002 2001
Total  0.6% 0.2% 3.0% 2.3% 1.6% 2.8%
 Total less Food & Energy 0.2% 0.3% 1.8% 1.5% 2.3% 2.7%
  Goods less Food & Energy 0.1% 0.0% -1.1% -2.0% -1.1% 0.3%
  Services less Energy 0.2% 0.4% 2.9% 2.9% 3.8% 3.7%
 Energy 4.6% 0.1% 14.7% 12.2% -5.8% 3.7%
 Food 0.9% 0.2% 4.1% 2.1% 1.8% 3.1%
Chained CPI: Total (NSA) 0.4% 0.3% 2.4% 1.9% 1.3% 2.3%
 Total less Food & Energy -0.1% 0.2% 1.2% 1.1% 1.9%  2.0%
U.S. Consumer Sentiment Improved in Mid-June
by Tom Moeller June 15, 2004

The University of Michigan’s consumer sentiment index for mid-June improved to95.2, the highest level in three months. Consensus expectations had been for a much smaller rise to 91.0.

During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE. That correlation has risen to 82% during the last five years.

Perceptions of current economic conditions rose 4.3% to the highest level since January. The expectations index rose 6.5% m/m and reversed most of the drop in May.

The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

University of Michigan Mid-June May Y/Y 2003 2002 2001
Consumer Sentiment 95.2 90.2 6.1% 87.6 89.6 89.2
   Current Conditions 108.1 103.6 14.1% 97.2 97.5 100.1
   Consumer Expectations 86.9 81.6 0.6% 81.4 84.6 82.3
Manpower Index of US Hiring Intentions Held The High Ground
by Tom Moeller June 15, 2004

The Manpower survey of hiring intentions in the US for 3Q04 held the strong improvement of 2Q. A seasonally adjusted net 20% of 16,000 employers expect to increase hiring activity.

The latest reading was unchanged from 20% in 2Q but that reflected sharp improvement from just 11% of firms expecting to increase hiring in 2002 and 2003.

Since 1980 there has been a 75% correlation between the Manpower index and the y/y change in non-farm payrolls.

The latest press release from Manpower Inc. covering employment prospects in the United States can be viewed here.

Manpower Employment Survey 3Q04 2Q04 3Q03 2003 2002 2001
All Industries - Net Higher (SA) 20 20 7 11 11 17
Empire State Index Firmer Than Expected
by Tom Moeller June 15, 2004

The Empire State Index of General Business Conditions for June was about unchanged from May at 30.17. The readings in both months were early double the average reading in 2003. Consensus expectations had been for a decline to 28.5.

Most subgroups of the survey weakened versus May. The new orders index reversed more than all of the sharp improvement in May as did the shipments index. The employment index similarly fell to a three month low.

Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question, not the components.

The prices paid index fell 4.1 points to 52.59 but remained up from the 10.82 averaged last year.

The June index of expectations for business conditions six months ahead improved to the highest level since February. Expectations for capital expenditures fell slightly.

The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.

For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click here.

Empire State Manufacturing Survey June May 6/03 2003 2002 2001
General Business Conditions (diffusion index) 30.17 30.21 27.82 16.30 7.02 -13.57
U.S. Business Inventories Up Again
by Tom Moeller June 15, 2004

Total business inventories rose 0.5% in April. It was the eighth consecutive monthly increase. Consensus expectations were for a 0.4% increase.

Retail inventories rose an upwardly revised 1.1% in April. Auto inventories jumped 2.0% (8.9% y/y) and non-auto inventories rose 0.6% for the seventh increase in the last eight months. Gains were across the board.

Inventory additions lead production gains. During the last ten years there has been a 46% correlation between the three month change in business inventories and the three month change in US factory production. That correlation rises to 65% when the production gain is lagged three months.

Overall business sales fell 0.1% (+11.3% y/y). Factory shipments fell 0.5% following the 4.2% jump in March. Retail sales also fell by 0.6% (+7.5% y/y) but then surged 1.3% in May.

The ratio of inventories-to-sales held at the record low of 1.30.

Business Inventories April Mar Y/Y 2003 2002 2001
Total 0.5% 0.7% 3.0% 1.9% 1.5% -4.5%
  Retail 1.1% 1.2% 5.5% 4.9% 6.0% -2.8%
    Retail excl. Autos 0.6% 0.7% 3.8% 3.0% 2.6% -1.1%
  Wholesale -0.1% 0.5% 3.7% 2.2% 0.4% -4.5%
  Manufacturing 0.4% 0.4% 0.2% -1.3% -1.8% -6.1%
Chain Store Sales Up
by Tom Moeller June 15, 2004

Chain store sales rose another 0.2% last week following a like gain the week earlier, according to the International Council of Shopping Centers (ICSC)-UBS.

Despite the increases sales in early June started 0.6% below the May average.

During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline.

The ICSC-UBS retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

ICSC-UBS (SA, 1977=100) 06/12/04 06/05/04 Y/Y 2003 2002 2001
Total Weekly Retail Chain Store Sales 439.2 438.5 5.3% 2.9% 3.6% 2.1%
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