INSTANT VIEW: U.S. CPI, NY factory data, TICs, Industrial output

NEW YORK Fri May 15, 2009 11:39am EDT

NEW YORK (Reuters) - U.S. consumer prices were unchanged in April as expected, but recorded their largest 12-month drop since 1955, government data showed on Friday, as sluggish consumer demand limited companies' pricing power.

A gauge of manufacturing in New York State signaled slowing contraction in May after hitting a record low only two months earlier, the New York Federal Reserve said in a report on Friday.

Net capital inflows into the United States in March were $23.2 billion, the Treasury Department said on Friday.

U.S. industrial production fell 0.5 percent in April, dropping for the sixth consecutive month but at a more modest pace than in recent months, Federal Reserve data showed on Friday.

KEY POINTS:

CPI * The Labor Department said its closely watched Consumer Price Index was flat after falling 0.1 percent in March. Compared to the same period last year, consumer prices fell 0.7 percent, the biggest 12-month decline since June 1955. In March, the year-over-year CPI rate fell 0.4 percent. * Core prices, which exclude food and energy items, rose a faster 0.3 percent versus a 0.2 percent increase in March. That compared to analysts' prediction for a 0.1 percent increase. Core prices rose 1.9 percent year over year after a 1.8 percent rise in March.

EMPIRE SURVEY * The New York Fed's "Empire State" general business conditions index climbed to minus 4.55 in May -- its highest since August 2008 -- from minus 14.65 in April. In March, the index sagged to minus 38.23, its weakest level since its launch in July 2001. * A reading below zero suggests manufacturing contraction. * Economists polled by Reuters had expected a May reading of minus 12.0.

COMMENTS:

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

INDUSTRIAL OUTPUT: "This was a surprisingly steady result for the manufacturing sector where there was a decline of only 0.3 percent, tending to confirm the hints of stabilization evident in the purchasing managers' surveys. It looks like a bottom in the manufacturing sector is at hand and that could be extrapolated into an eventual swing into positive territory as the inventory selloff eases. The Fed will be cautiously optimistic about this report. The manufacturing is almost, if not the weakest, sector of the economy and improvement there is a prerequisite to a broader economic recovery."

ROBERT BRUSCA, CHIEF ECONOMIST, FACT AND OPINION ECONOMICS, NEW YORK:

INDUSTRIAL OUTPUT: "The manufacturing number looks pretty good. We actually have some increase in consumer durables. We are in the right direction. It follows the trend that things are less bad."

NET CAPITAL FLOWS: "The current account has dropped so we don't need as much inflows so it's not as much of a problem."

TJ MARTA, MARTA ON THE MARKETS LLC, SCOTCH PLAINS, NEW JERSEY:

"The data should assuage fears of a complete collapse in foreign demand for U.S. securities. We expect that the pace of net buying will remain moderate in keeping with the downshift in global trade."

KATHY LIEN, DIRECTOR OF CURRENCY RESEARCH AT GFT FOREX IN NEW YORK:

"The TICs numbers are good and show a nice improvement from prior readings. It shows that money was returning into U.S. dollars despite yields being so low. But it is not a surprise, given that risk aversion has supported a strong bid into U.S. assets until very recently."

"Euro/dollar moved a bit after the release and this figure is a positive for the U.S. economy, which in turn, should ease fears and may take some safe-haven bids out of the U.S. dollar. The currency is rallying right now, but I don't expect it to last, especially if we keep getting more positive data."

ALAN RUSKIN, GLOBAL HEAD OF CURRENCY STRATEGY, RBS GLOBAL BANKING & MARKETS, GREENWICH, CONNECTICUT:

"The core CPI data was very disappointing. Another sharp rise in tobacco that seems to reflect indirect taxes going up has again added close to 0.75 percent to total CPI, and without it would make the core CPI (that was a low 0.3 percent at 0.253 percent), much more palatable. Although there are a few disappointing signs elsewhere in the CPI data, notably on medical care, I doubt this will make the Fed waver on Fed QE commitments. On the contrary a rise in inflation expectations and the impact on bond yields could make them add to QE!"

IAN SHEPHERDSON, CHIEF U.S. ECONOMIST, HIGH FREQUENCY ECONOMICS, VALHALLA, NEW YORK:

"The April CPI was unchanged, in line with the consensus, but the core rose 0.3 percent, well above the consensus 0.1 percent and the biggest increase since July last year.

"The headline was depressed by bigger declines in energy and food prices than expected, while the big surprise in the core a 9.3 percent jump in tobacco prices. This follows an 11.0 percent leap in March. It can't continue, so a better guide to the underlying picture comes from the core ex-tobacco, which rose 0.16 percent in April and 0.06 percent in March. The April details show modest upticks in medical, vehicle and education costs, while apparel fell 0.2 percent and rents were subdued. In short, this does not change our view that the pressure on core CPI is downwards and will remain so for the foreseeable future, though the markets likely will disagree for now."

KIM RUPERT, MANAGING DIRECTOR OF GLOBAL FIXED INCOME ANALYSIS, ACTION ECONOMICS LLC, SAN FRANCISCO:

"Bonds are only slightly negative. I think it was the stronger than expected Empire State numbers. They improved pretty sharply.

"We also got a little up-tick in the core CPI year over year but I think most of the erosion in Treasuries was on the Empire State."

"It does add to those beliefs that maybe the worst of the recession is over."

PETER KENNY, MANAGING DIRECTOR, KNIGHT EQUITY MARKETS, JERSEY CITY, NEW JERSEY:

CPI: "This confirms the data we saw earlier in the week, which spoke to a year-over-year decline. This is good in so many ways. The bears are going to look at this and say we have deflation on the way and a decelerating economy, but I don't think that's the case. I think this will be viewed as a healthy contraction that will lead to a sustainable recovery."

MARKET REACTION: STOCKS: U.S. stock index futures pare losses BONDS: U.S. Treasury debt prices turn negative DOLLAR: U.S. dollar trims losses versus yen