Producer prices went up a seasonally adjusted 0.8 percent during the quarter (+0.6 in April, -0.2 in May). If we see a similar result with consumer prices, it would seem to imply that the GDP inflator in the second quarter’s GDP calculation needs to be in the neighborhood of an annualized 3.0 percent — far higher than what we’ve seen in previous quarters.
Update, 10:00 a.m.: Given that much of what may have been bought or consumed in the second quarter would have been produced in prior quarters, there’s justification for a lower GDP deflator than just indicated. But it seems like it should be higher than the 1.3 percent or so we’ve typically seen in previous quarters.
If anyone can tell me why the Fed is correct when it says that industrial production “advanced at an annual rate of 5.5 percent for the second quarter of 2014,” let me know. I think it’s a typo, and that the increase is really 2.5 percent. No change in April, +0.5 in May, and +0.2 in June could lead to a 2.5 percent result; it can’t possibly lead to +5.5 percent.
That quarterly increase of 0.7 percent (0.5 plus 0.2) is less than half of the 1.6 percent revised increase seen during the first quarter, and we know (at least until the July 30 revision) that the far better number occurred during a quarter of GDP contraction.
Manufacturing output increased by only 0.1 percent.
Zero Hedge logically asks:
Does this look like a Q2 recovery bounce that is strong and supportive of 3% GDP growth?
No it doesn’t. Not at all.