World News!

China

• With US Vice-President Joe Biden getting ready to arrive in China, our single largest sovereign debt holder has spelled out exactly what they want to hear from its debtor:  "As the United States' largest foreign creditor, China has much at stake over US economic policy changes and a stable US dollar[1].  Therefore, Washington's handling of all the related issues in a responsible manner will contribute to the steady growth of China-US ties and the stable development of the world economy given the mounting concern about European and US debt woes and fragile global economic recovery."
• Remember the report from a couple of days ago, claiming that Pakistan had given China access to the wrecked stealth helicopter used in the raid that killed Bin Laden?  The Chinese defence minsitry has denied it, and US officials have been unable to confirm the story.

Libya

• Rebel forces have attacked the oil refinery at Zawiyah, one of the last sources of fuel for loyalist troops and the city of Tripoli.  In related news, the rebel National Transitional Council has also denied negotiating a peaceful conflict to the civil war with the Libyan government.

Syria

• The good news is that "shelling and the sound of tank machineguns [are] subdued today".  The bad news is that Syrian "security personnel" are rounding up hundreds of people in Latakia and forcibly interring them in a stadium.  Condemnations continue to trickle in from the rest of the world[2], with Turkey taking the hardest line to date:  "if the operations continue in Syria and the operations become a regional problem Turkey can naturally not remain indifferent".

United States

• Texas governor and Republican presidential candidate Rick Perry declared that it would be "treasonous" if Ben Bernanke "prints more money between now and the election".  He didn't quite advocate murder as a response, but it's hard to interpret the following comment in a different light:  "If this guy prints more money between now and the election, I don't know what y'all will do to him in Iowa, but we would treat him pretty ugly down in Texas."
• President Obama's response to Governor Perry's remarks?  "You know, Mr. Perry just got into the presidential race.  I think that everybody who runs for president, it probably takes them a little bit of time before they start realizing that this isn't like running for governor or running for senator or running for Congress, and you've got to be a little more careful about what you say.  But I'll cut him some slack.  he's only been at it for a few days now."
• Warren Buffett - yes, that Warren Buffett - has suggested that the US "Stop Coddling the Super-Rich".
• In "you know, they were called coffin nails in the 19th century" news, RJ Reynolds Tobacco, Lorillard Tobacco, Commonwealth Brands, Liggett Group and Santa Fe Natural Tobacco have filed suit against the Food and Drug Administration to stop a new law that would require them to place graphic health warnings on cigarette packets.  The suit claims that the law violates their constitutional right to free speech.

[1]  To quote Xinhua:  "Among China's more than 3 trillion dollars foreign exchange reserves, 1.16 trillion dollars were US Treasuries bonds as of May, according to the US Treasury Department.  'If the greenback devalues by 10 percent to 20 percent, China will suffer another loss of as much as 200 billion to 300 billion in the near future,' according to Chen Xiankui, a professor at Renmin University of China."

[2]  Polonius:  What do you read, my lord?

     Hamlet:  Words, words, words.

Producer Price Index News Release

 

Bureau of Labor Statistics

The latest Producer Price Index news release has been posted on the BLS website at http://www.bls.gov/news.release/pdf/ppi.pdf and also archived at http://www.bls.gov/news.release/archives/ppi_08172011.pdf. Highlights are below. In July the PPI for finished goods increases 0.2% and finished core advances 0.4% 08/17/2011 The Producer Price Index for finished goods rose 0.2 percent in July, seasonally adjusted. This advance followed a 0.4-percent decrease in June and a 0.2-percent rise in May. Prices for finished goods less foods and energy rose 0.4 percent. HTML | PDF

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Producer Price Index

We've only got one major piece of market data today, but it's a big one:  the Producer Price Index (or, more precisely, indexes).  Given the title of this news item, this should be no surprise.

 

The Producer Price Index is actually a set of indexes that measure the change in costs of supplies used by manufacturers at all stages of the manufacturing and production process - raw materials, intermediate goods, and finished products.  It's very much like the Consumer Price Index, except for producers, because it is essentially a measure of inflation.  If PPI is up, you can expect to see it eventually flow through to the CPI as well - although not always at a 1:1 ratio.  After all, a lot of manufactured goods are discretionary, and if the prices go up too far people will just refuse to buy them.

 

Nevertheless, the market pays attention to this figure.  Rising costs, particularly if they don't get passed on to the consumer, cut into corporate profits

 

The June 2011 results were mixed.  PPI for finished goods fell 0.4% (beating expectations), but core PPI rose 0.3% (missing expectations).  The overall change in PPI was driven by a 2.8% decrease in finished energy.  Intermediate goods PPI changed 0.0%, and crude goods PPI fell 0.6%.

 

For July 2011, the Econoday-surveyed analysts aren't quite as optimistic.  They're calling for a 0.0% change in PPI for finished goods, and a 0.2% increase in core PPI for finished goods.  And as always, we turn to the US Bureau of Labor Statistics' Producer Price Indexes - July 2011 to see if the analysts are right.  And the short answer is that they are not right.

 

The Producer Price Index for finished goods actually rose 0.2% (missing expectations), and the core Producer Price Index rose 0.4% (also missing expectations).  The report pins the blame for the core PPI increase on a 2.8% increase in tobacco product prices[1], as well as on an increase in the cost of light motor trucks and pharmaceutical preparations.  The increase in overall PPI is blamed on finished consumer foods, which increased 0.6% (driven by a 2.7% increase in beef and veal prices and by higher prices for fresh fruits and melons), offset slightly by a 0.6% decline in finished energy prices (led by gasoline, which fell 2.8%).

 

PPI for intermediate goods rose 0.2%, mostly on a 2.1% increase in the cost of plastic resins and materials.  PPI for crude goods fell 1.2%, driven by a 2.6% decline in crude energy materials and a 0.8% decline in crude foodstuffs and feedstuffs.

 

All in all, not great.  But far from terrible, really.

 

[1]  Tobacco:  not food, and not energy.

World News!

Libya

• Libyan rebels have seized control of the coastal town of Zawiyah,, 30 miles west of Tripoli, giving them the ability to halt food and fuel shipments from Tunisia to the capitol.

Pakistan

• In "just when you though relations couldn't get any worse" news, the Financial Times has reported that Pakistan gave China access to the crashed US stealth helicopter that was part of May's commando raid to kill Osama bin Laden.  The reports indicate that China was allowed to take pictures and samples of the aircraft's skin.  Pakistan has officially denied the report.

South Korea

• South Korean civilians were evacuated into emergency shelters around 2 PM local time, as North Korea fired artillery at Yeonpyeong Island.  Again.

Syria

• Syria is on its thrid day of brutal tank-based repression of protests in the port city of Latakia[1], supplementing the conventional ground forces with naval bombardments.  Fortunately, according to the official Syrian news agency, the tank-based "order preservation forces" are entirely blameless;  all of the damage and civilian deaths are being caused by armed terror gangs "using machineguns and explosives from rooftops and from behind barricades".

United States

• According to Mitt Romney, "Corporations are people".

[1]  They're on month 5 of the brutal tank-based repression of the populace in general.  Kinda makes you wonder where the outrage from NATO and the UN is, doesn't it?

First Time Jobless Claims

And of course, we have the first time jobless claims.  What can I say about this that hasn't already been said?

 

Last week, the analysts were expecting a seasonally-adjusted 403,000 new claims for the week ending 7/30.  We came in at 401,000, which beat expectations right until the almost inevitable moment today in which that figure is revised upwards[1].  Unadjusted initial claims for the same period declined 27,230 to a level of 339,348, and the total number of people claiming benefits in all programs (for the week ending 7/16) came in at 7,570,439.

 

The Econoday-surveyed analysts are not expecting the week ending 8/6 to be so good.  They are calling for 405,000 new claims for the week.  Are they right?  Well, history seems to show that they aren't, but let's look and find out anyway.

 

Right off the bat, the Unemployment Insurance Weekly Claims Report shows my continuing skepticism about the advance figures is justified.  But only slightly, this week.  The new claims for the week ending 7/30 were revised upwards to a level of 402,000[2].  And now, here's where the interesting data happens:  for the week ending 8/6, the advance figure for seasonally adjusted initial claims comes in at 395,000 - substantially beating expectations.  On the down side, the unadjusted initial claims figures for the same week rose 12,022 to a level of 351,370.  The total number of people claiming benefits in all programs fell 90,524 to a level of 7,479,915[3].

 

So, we had a dose of good news for the markets that are feeling spooked by current economic conditions.  Will it be enough to turn things around?  No, probably not.  Not on its own, anyway.

 

[1]  We're sitting at 19 upwards revisions out of 23 weeks, so we have an 82.61% chance of an upwards revision.

[2]  So yes, that does put us at 20 upwards revisions out of 24 weeks.  But it seems almost petty to lament an upwards revision of 2000.

[3]  A fact that is not, as I have remarked before, necessarily good news.

International Trade

The International Trade Balance - aka the US International Trade in Goods and Services report - is a look at the nation's trade deficit.  Or, theoretically, our trade surplus.  It's a pretty hefty report as economic indicators go, because it's added to the sum of consumer spending plus private investing plus government spending to determine what our GDP is.  And since we've been running a trade deficit for decades now, meaning nobody seriously expects to see a surplus when the report comes out, the markets get happy when the trade deficit shrinks.

 

Last month, there was no happy for the markets.  The analysts had been expecting the trade deficit to decline $1 billion to a level of $42.7 billion.  Unfortunately, the sad reality was that our trade deficit increased $6.5 billion to a level of $50.2 billion, driven by a decrease in industrial supplies and materials exports and an increase in imports of industrial goods and supplies and of capital goods.

 

But hope springs eternal, and the Econoday-surveyed analysts are expecting June to be a better month.  They're looking for a $2.2 billion decline in the trade deficit, bringing it to a new level of $48 billion.

 

Turning now to the joint US Census Bureau/US Bureau of Economic Analysis report, we see that hope - far from springing lightly - has been crushed to earth by the iron-shod fist of reality.  The trade deficit did not decline $2.2 billion.  It did not decline at all.  Rather, it increased $2.9 billion to a level of $53.1 billion.

 

So, yeah.  No happy for the markets on this front this month either.

First Time Jobless Claims

It's that time of the week already.  So let's brace ourselves for the last bit of employment data we get before tomorrow's Employment Situation report - the oft-revised First Time Jobless Claims!

 

Last week, the seasonally adjusted initial claims figures for the week ending 7/23 came in at 398,000.  Which nicely beat expectations (except for that pesky 87.81% chance that it will be revised upwards today).  Actual initial claims fell as well, dropping to a level of 366,578, with the total number of people claiming benefits in all programs for the week ending 7/9 rising to 7,645,601.

 

And what are the Econoday-surveyed analysts thinking for the week ending 7/30?  They're thinking that we'll see an uptick in the number of people filing for benefits, and the consensus prediction is for a seasonally-adjusted 403,000 new claims.  But are they right?  Let's go to the Unemployment Insurance Weekly Claims Report and find out.

 

First off, to nobody's surprise, the figures for 7/23 were revised upwards to 401,000 new claims[1].  The advance figure for seasonally adjusted initial claims for the week ending 7/30 then comes in at 401,000, beating expectations by 2000.  The unadjusted initial claims for the same period come in at 339,348, a decline of 27,230.  And the total number of people claiming benefits in all programs for the week ending 7/16 comes in at 7,570,439 (a decline of 75,162).

 

All things considered, this wasn't too bad a report.

 

[1]  Still beating last week's expected 423k new claims, but also meaning that we now have 19 upward adjustments out of 23 total weeks