KPIG Radio / The Profit Motive August 17

Despite a lack of significant news stocks enter the final hour with large gains. Industrial Production advanced 1% in July on strong increases in durable goods, autos and business equipment. Capacity utilization jumped .7 points to 74.8. With the inventory building process petering out, anemic end user demand will require slowing of production which is consistent with the idea that the economic recovery is faltering.

Housing starts increased 1.7% to 546,000 in July as permits fell 3.1% during the same period. After a jumping 24% in June to 874,000 units completions plunged to just 587,000 in July. This of course reflects the expiration of the homebuyer tax credit, no real surprise there but it does serve as an example of government influence in the real estate market. I bring this up because next week features the existing home sales report. A report that is highly likely to be quite shocking as inventory spikes and prices fall absent the tax credit.

The PPI advanced .2% in July, snapping a trio of monthly price declines. The annualized rate jumped to 4.1%. That said price pressures at earlier stages of processing continue to show falling annualized rates of increase, Intermediate fell .6% to 4.8% and Crude dropped 5.3% to 25.1%, reflecting the large declines in commodities prices over the last 12-months.

Earnings season raps up today, better than expected results form Wal-Mart and Home Depot, are ostensibly the reason for today’s rally. That said the 2nd quarter started with a bang and finished with a whimper despite a very, very easy comparison, because the 2nd quarter of 2009 was the depths of the financial panic.
When the earnings reporting season began the beat rate was running above 70% at the close it had fallen to 66%. While that figure is above the historical average it is disappointing in current context as the year ago figure was so weak.