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Prospects Daily: U.S. industrial production continues rising

Global Macroeconomics Team's picture

Important developments today:

1. U.S. Treasuries gain amid European debt woes and cooling U.S. CPI

2. U.S. industrial production continues rising


U.S. Treasuries gain amid European debt woes and cooling U.S. CPI. Treasury prices moved higher on Wednesday morning, advancing for the third consecutive day, as growing fears that debt crisis may spread to other bigger Eurozone economies boosted demand for safe-haven assets. Treasuries extended gains slightly after the U.S data showed the consumer price index declined unexpectedly in October, possibly signaling cooling inflation. Contagion concerns gripped European sovereign debt market on Wednesday, with Italian 10-year bond yields climbing above the 7% level generally viewed as unsustainable borrowing cost in the long term. Benchmark U.S. 10-year note yields declined 2 basis points (bps) to 2.02%, while yields on 30-year securities fell also 2 bps to 3.07%. Meanwhile, foreign demand for U.S .Treasury securities rose in September, with China increasing its holding by 1% to total holding of $1.15 trillion.

U.S. industrial production continues rising. Supported by the post-Tohoku restoration of supply chains, resilient business and consumer spending and a cheaper dollar that is supporting export sales, industrial production in the US rose in October. In figures released today by the Federal Reserve, US industrial output in October rose 0.7% on a month-on-month basis (3.4%, y/y) [see Chart at http://prospects or]. Boosted by growth in the auto sector, factory output, which has been at the forefront of the US recovery and accounts for some 75% of industrial output was up 0.5%. Mining production increased 2.3% and utilities declined 0.1%. The October figures provide a robust start to industrial activity in Q4, and should bode well for Q4 GDP growth. With inventory-to-sales ratios remaining low, should US consumer and business spending remain resilient through the quarter, then unlike in Q3 where inventories deducted from GDP growth, Q4 GDP could be boosted by an increase in output to replenish drawn down stocks.

Among Emerging Markets

In Central and Eastern Europe, Russia’s industrial output grew by 4% in October from the previous month, for an annual increase of 3.6% in industrial production. The annual reading was the slowest since October 2009, with warmer weather decreasing output at utilities, and mining production posted a 0.3% (y/y) decline.

In Middle East and North Africa, Morocco’s unemployment rate edged up to 9.1% from 8.7% in September from the end of the second quarter, with urban unemployment significantly higher at 13.5%.

In Sub-Saharan Africa, Inflation in Botswana increased from 8.6% in September to 8.8% in October, with the core inflation rate moving down from 9.4% to 9.2% over the same period. In Tanzania inflation soared to 17.9% (y/y) in October from 16.8% in September, as food costs, which constitute almost half of the consumer price index, increased by 1.2% over the month. Inflation in Zimbabwe eased to 4.2% (y/y) in October from 4.3% in the previous month as food prices, which had been driving up the cost of living, remained unchanged over the month.