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NIKKO MARKET COMMENTS
Prepared by
The Nikko Securities Co. International, Inc.
Economic News
Producer prices fell by 0.1% in both overall and core measures. The seven consecutive months of falling producer prices have resulted in a year-over-year inflation rate of —0.2%; core inflation is zero. Even more impressive are the year-to-date (YTD) measures: the YTD PPI inflation rate is —3.1% (annualized); YTD core inflation stands at —0.4%. Pipeline price pressures were minimal this month. Core intermediate PPI prices were flat. Core crude materials prices fell by 0.5%, completely reversing last month's 0.4% rise. The inflation-absent environment at the producer level should contribute to restraining some of the upward pressures at the consumer level. However, since the CPI is more sensitive to labor costs, 0.2% gains in tomorrow's CPI report are still likely. Separately, retail sales rose by 0.6% in July while non-auto retail sales rose by 0.5%. Sales in June were revised up to 0.7% (from +0.5%); non-auto sales in June were revised to +0.4% from +0.3%. The latest July data showed broad-based retail gains. The only exception was furniture sales, which is expected to improve in coming months in line with strengthening housing market conditions. Looking forward, retail sales are at risk of disruptions from the UPS strike. Anecdotal reports suggest that some retailers have begun to experience problems with restocking inventories.
The ABC News Consumer Comfort Index fell by two points to 11 after last week's record high reading. Still, the survey's economy component jumped by 4 points to its record high. Behind the lower composite reading were lower index readings for the buying climate and personal finances. Jobless claims rose by 12,000 to 316,000 in the August 9 week. The rise represents a return to the prevailing range prior to the auto sector distortions. Total claimants fell by 45,000 this week after a large downward revision to last week's estimate. The current number of claimants is the lowest since early June. The insured unemployment rate fell to 1.9% from 2.0%. Demand for refinancing increased again. The mortgage applications index for refinances rose by 4% this week to a reading of 718.8 from 689.3 last week. The index for purchase-related applications rose to 220.5 from 211.7, also a 4% rose. Consumer prices were in line with expectations in July. Both overall and core measures increased by 0.2%. Year-to-year inflation stands at 2.2%; core inflation is 2.4%. Among the sub-components of the report, most broad measures were subdued. Medical care inflation was flat. Transportation and entertainment each rose by 0.1%. Apparel and housing were each up by 0.2%. Food and “other” prices posted 0.3% gains. Separately, the Commerce Department reported a 0.7% rise in business inventories in June. Most of the bulge in inventories were located in the wholesale sector. Inventories at the manufacturing and retail segments rose by 0.3% and 0.2%, respectively. The larger inventory gain does not present an overhang, however, as sales growth also rose by 0.7%. The Fed's Industrial Production report showed a 0.2% gain in July. The capacity utilization rate fell to 83.1% after a downward revised 83.3% rate last month. The modest pace of production growth, lower capacity operating rate, and subdued inflation measures, contribute to the argument for steady Fed policy in August.
Robert A. Brusca, Chief Economist
The Nikko Securities Co. International, Inc.
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