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Thursday, August 15, 2013 12:33 PM


Philly Fed Misses Expectations; Industrial Production Unchanged; Manufacturing Declines; Treasury Yields Soar Anyway


Philly Fed Misses Expectations

Bloomberg reports Manufacturing in Philadelphia Regions Expands for Third Month

The Federal Reserve Bank of Philadelphia’s general economic index fell to 9.3 this month from a reading of 19.8 in July that was the highest since March 2011. Readings greater than zero signal growth in the area, which covers eastern Pennsylvania, southern New Jersey and Delaware.

The median forecast of 54 economists surveyed by Bloomberg called for a reading of 15. Estimates ranged from 7 to 23.
Industrial Production Unchanged

Manufacturing in the Philadelphia region may be up, but overall manufacturing is negative while industrial production is unchanged for July.
Industrial production in the U.S. was unchanged in July as a slowdown at factories overshadowed an increase in mining.

The reading for output at factories, mines and utilities followed a 0.2 percent gain the prior month that was smaller than previously reported, a report from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of 82 economists called for a 0.3 percent rise in July.

Manufacturing, which makes up 75 percent of total production, declined for the first time in three months.
Month-Over-Month Manufacturing Declines



Manufacturing is down month-over-month but only slightly. Let's look at some longer term trends in manufacturing and industrial production.

Industrial Production Percent Change From Year Ago



Manufacturing Percent Change From Year Ago



Trends are certainly weakening in manufacturing and industrial production.

Wal-Mart Cuts Profit Outlook

As noted earlier, Wal-Mart, Macy's, Kohl's Cut Profit Outlook; Cisco to Cut 4,000 Jobs, Blames Weak Economic Recovery.

With a weaker than expected Philly Fed, negative manufacturing, flat industrial production numbers, and a declining outlook at Wal-Mart and other retail stores, one might have thought treasury yields would drop.

Nonetheless, treasury yields rose, presumably on the assumption the Fed is still going to taper asset purchases starting next month and the economy will strengthen.

The first assumption is questionable, the latter is highly overoptimistic.

$TNX 10-Year Treasury Yield



$TYX 30-Year Treasury Yield



Yields Rise Significantly in Two Days

  • In the last two days Yield on the 30-Year long bond rose from 3.602% to as high as 3.837%, a rise of 23.5 basis points (nearly a quarter percentage point).
  • Yield on the 10-Year treasury note rose from 2.552% to as high as 2.821%, a significant rise of 26.9 basis points (over a quarter percentage point).

Curve Watchers Anonymous offers the following chart to help put things in proper perspective.

Yield Curve Historical Perspective



 click on chart for sharper image


  • $TYX: 30-Year Treasury Yield - Green
  • $TNX: 10-Year Treasury Yield - Orange
  • $FVX: 05-Year Treasury Yield - Blue
  • $IRX: 03-Mnth Treasury Yield - Brown


To understand the significance of this move higher in treasury yields, please see Mortgage Applications Decline 13th Time in 15 Weeks; Are Mortgage Rates Cheap? What's Next For Housing?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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