Inflation, Jobs & Manufacturing

We have a range of economic data on tap today, from Jobless Claims and CPI to Industrial Production and regional manufacturing surveys. Europe will also be not far from investors’ mind, though the tone of recent headlines out of Europe has softened a bit. Some of the more dire concerns about Greece’s position in the Union and about French banks appear to have eased somewhat. But the issue is far from resolved and will be back soon.

We heard this morning that a supposedly ‘rogue trader’ at UBS (UBS) caused the bank $2 billion in losses through unauthorized trades. The trader has reportedly been taken into custody. But it is a sad commentary on investment banks’ risk management systems that something like this can happen even today, the third anniversary of the Lehman Brothers collapse. I guess as they say, “the more things change, the more they stay the same.”

This morning’s economic reports maintain the recent trend of mixed readings that at best provide for sub-par growth if not a recession. If I have to characterize this morning’s economic readings, I would put CPI as neutral, while the Jobless Claims and Empire State reports were on the negative side.

The CPI number was a tad hotter than expected on the headline basis, but the ‘core’ number was about inline with expectations. Given the broader decelerating trend in the economy and the recent pullback in commodity prices, inflation will likely have less staying power than would otherwise be the case. However, persistent ‘hot’ CPI readings will make it difficult for the Fed to contemplate further quantitative easing, even if it is inclined to go that route.

I am not terribly concerned about the CPI number, but I must concede that the Jobless Claims report turned out to be quite disappointing. Weekly Jobless Claims increased by a greater than expected 11K for the week to 428K; the expectation was for a modest drop. The prior-week’s tally was revised upwards to 417K from 412K. The relatively more stable 4-week average increased by 4K last week to 419.5K.

The New York Fed’s Empire State manufacturing survey for September also came in weaker than expected, pushing the reading further into negative territory. This survey, coupled with the Philly Fed report that comes a little later today, has been flashing red lately.

But the weakness in these two regional manufacturing surveys has not been corroborated by the national manufacturing ISM and Industrial Production reports thus far. It will be interesting to see what the August Industrial Production brings later today.

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