More Signs that Economy is Rebounding

Continuing Improvement in Current Economic & Market News

Retail sales increased 2.7% (-5.9% yoy) in August. Ex-autos, sales were firmer than expected, rising 1.1% (-7.0% yoy). This reading introduces additional upside risks to Q3 GDP growth.

Gasoline prices pushed the PPI up sharply in August by 1.7% (-4.3% yoy), while Core PPI rose 0.2% (+2.3% yoy). The core index was a bit stickier than we forecasted, with prices of new cars and trucks contributing to the upside surprise.

CPI in August rose 0.45% (-1.5% yoy) while core CPI rose 0.07% (+1.4% yoy). The firmer-than-expected readings resulted from the treatment of the cash for clunkers rebates, which were not considered a discount as we had expected. Inflation pressures of other components remain muted,
consistent with tame and abating inflation.

Industrial production jumped 0.8% in August (-10.7% yoy) after a large upward revision for July. The strong back-to-back increases strengthen the likelihood that the NBER will mark the trough of the recession in June. Capacity utilization increased to 69.6% in August. Although still below post WWII standards, we believe the higher than expected increase speaks to the strength of the unfolding rebound.

Housing starts moved up 1.5% in August (-29.6% yoy), as a 25% gain in multifamily starts overwhelmed a 3% drop in single family starts. The setback in single family starts follows five
months of gains of nearly 40%.